FINANCIAL ACCOUNTING AND REPORTING

GENERAL INSTRUCTION: Select and shade the letter of your best answer using the Answer Sheet provided.

1. Accounting is a service activity. Its function is to 6. Which is not a purpose of the Revised Conceptual
provide quantitative information, primarily financial Framework?
in nature, about economic entities, that is intended A. To assist the IASB to develop IFRS based on
to be useful in making economic decision. This consistent concepts.
definition was provided by B. To assist prepares to develop consistent
A. Accounting Standards Council accounting policy when no standard applies to
B. American Accounting Association a particular transaction or when Standard
C. Accounting Standards Commission allows a choice of accounting policy.
D. American Standards Council C. To assist all parties to understand and
interpret the Standards.
2. The Continuing Professional Development is required
for D. d. To assist regulatory agencies in issuing rules
A. Renewal of CPA license and regulations for a particular industry.
B. Accreditation to practice the accountancy
profession 7. Which of the following is/are true about a "credit"?
C. Both renewal of CPA license and accreditation I. It is part of the double-entry procedure that keeps the
to practice the accountancy profession accounting equation in balance.
D. Neither renewal of CPA license nor II. It represents a decrease to assets.
accreditation to practice the accountancy III. represents an increase to liabilities.
profession IV. It is on the right side of a T-account.
A. I and II
3. Which of the following statements relate the B. IV only
accountancy profession is true? C. I, II and III
A. The law regulating the practice of accountancy D. I,II, III and IV
in the Philippines is R.A. 9298 otherwise
known as the X Philippine Accountancy Act of 8. A journal entry that contains more than two accounts
2004. is called
B. The Board of Accountancy is the body A. Simple journal entry
authorized by law to promulgate rules and B. Compound journal entry
regulations affecting the practice of the C. Erroneous journal entry
accountancy profession in the Philippines. D. Adjusting entry
C. Certified Public Accountants generally practice
their profession in three main areas: public 9. Which is not a possible combination of a journal
accounting, private accounting and entry?
government accounting. A. Increase in asset and increase in liability
D. All of these statement are true. B. Decrease in equity and increase in liability
C. Decrease liability and decrease in asset
4. Which of the following statements best describes the D. Increase in asset and decrease in equity
term "financial position"?
A. The net income and expenses of an entity 10. PASAR LAGE CORP. had the following account
B. The assets, liabilities and equity of an entity balances on December 31, 2024:
C. The net of financial assets less liabilities of an Petty cash fund 500,000
entity Cash in back-current account 4,000,000
D. The potential to contribute to the flow of cash Cash in bank-sinking fund 2,000,000
and cash equivalents to the entity. Cash on hand 500,000
Cash in bank - restricted account
5. Inflation is ignored in accounting due to for plant addition, expected to
A. Economic entity assumption be disbursed in 2025 1,500,000
B. Going concern assumption Treasury bills 1,000,000
C. Monetary unit assumption The petty cash fund included unreplenished
D. Periodicity assumption December 2014 petty cash expense vouchers of
P10,000 and employee IOU of P5,090. The cash on
hand included a 100,000 check payable to PASAR
 FINANCIAL ACCOUNTING AND REPORTING
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dated January 15, 2025. In exchange for a guaranteed Allowance for doubtful accounts 1/1 180,000
line of credit, the entity has agreed to maintain a Sales 9,500,000
minimum balance of 200,000) in its unrestricted Sales returns & allowances 800,000
current bank account. The sinking fund is set aside to Sales discount 200,000
settle a bond payable that is due on June 30, 2025. Accounts written off as uncollectible 200,000
What total amount should be reported as "cash and The entity provided for doubtful account expense at the
cash equivalents December 31, 2024? rate of 5% of net sales. What amount should be
A. 4,435,000 reported as doubtful accounts expense for the current
B. 5,435,000 year?
C. 5,535,000 A. 435,000
D. 7,435,000 B. 425,000
C. 475,000
11. KADJAWA COMPANY developed the following D. 415,000
reconciling items in preparing its December bank
reconciliation: 15. KAYA Corp has the following data relating to
Cash balance per bank, 12/31 13,000 accounts receivable at the end of the current year:
Notes receivable collected by bank
(including interest of P100) 6,000 Accounts Receivable 1,880,000
Outstanding checks Allowance for doubtful accounts 94,000
(including P500 certified checks) 8,000 Allowance for sales discounts 10,000
Deposit in transit 4,500 Allowance for sales returns 15,000
Bank service charge 75 Allowance for freight 3,000
NSF check (P100 of which was Redeposited
and cleared on January 5) 1,200 What is the net realizable value of KAYA Corp.'s account
Deposit of KADAYAW CORP. credited receivable?
by bank to KADJAWA's account 400 A. 2,708,000
A creditor check of for 3000 was incorrectly B. 1,880,000
recorded in the depositor's book as 300 C. 1,758,000
D. 1,752,000
What is the adjusted cash in bank on December 31?
A. 9,900 16. Metrobank granted a loan to a borrower on January
B. 9,300 1, 2019. The interest loan is 8% payable annually
C. 9,100 starting December 31, 2019. The loan matures in
D. 9,600 three years on December 31, 2021.
Principal amount 3,000,000
12. Using the above information, how much is the cash Origination fee charged against
balance per books (before adjustments) for the borrower 100,000
KADJAWA COMPANY? Direct origination cost incurred 260,300
A. 7,575 After considering the origination fee to the borrower
B. 7,475 and the direct origination cost incurred, the effective
C. 12,000 rate on the loan is 6%. What is the carrying amount
D. d. 13,000 of the loan receivable on January 1, 2019?
A. 3,160,300
13. Petty cash fund is B. 3,260,300
A. Restricted cash C. 2,900,000
B. Money set aside for payment of interest. D. 3,000,000
C. Separately classified as current asset.
D. Money kept on hand for making minor 16. Those accounts supported by formal promises to
disbursements of coin and currency rather pay in the form of promissory note.
than by writing checks. A. Accounts Receivable
B. Promissory Notes
14. An entity provided the following data for the C. Notes receivable
current year: D. Loan receivable
 FINANCIAL ACCOUNTING AND REPORTING
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18. GO LANG Company factored P9,000,000 of accounts 22. A debt investment shall be measured subsequently
receivable to a finance entity at the end of the at amortized cost
current year. Control was surrendered by GO LANG A. By irrevocable designation
Company. The factor accepted the accounts B. When the debt investment is managed and
receivable subject to recourse for nonpayment, The evaluated on a document risk-management
fair value of the recourse obligation is P150,000. The strategy.
factor assessed a fee of 3% and retained a hold back C. When the debt investment is held for trading
equal to 5% of accounts receivable. In addition, the D. When the business model is to collect
factor charged 15% interest computed on a weighted contractual cash flows that are solely principal
average time to maturity of accounts receivable for and interest.
54 days. How much is the initial cash receipt from
factoring? 23. Bonds that mature on a single date
A. 8,080,274 A. Term bonds
B. 7,930,274 B. Serial bonds
C. 619,726 C. James bond
D. 8,850,000 D. Liquor bond

19. An outright sale of receivable 24. Cash surrender value is classified as:
A. Pledge A. Current asset
B. Assignment B. Non-current asset
C. Factoring C. Current liability
D. Discounting D. Equity

20. An investment in equity instrument may not be 25. CHEER UP Company purchased P1,000,000 ordinary
classified as a financial asset subsequently life insurance policy on its president. CHEER UP
measured at Company is the beneficiary under the life insurance
A. Fair value through profit or loss policy. The policy year and the entity's accounting
B. Fair value through other comprehensive year coincide. The entity provided the following
income data for the current year:
C. Amortized cost
D. None of the above Cash surrender value, Jan 1 43,500
Cash surrender value, Dec 31 54,000
21. Significant influence is Annual advance premium paid
A. The power to participate in the financial and January 1 20,000
operating policy decisions of the investee but Dividend received July 1 3,000
is not control or joint control over those
policies. What amount should be reported as life insurance
B. Deemed to exist when the investor is exposed, expense for the current year?
or has rights, to variable returns from its A. a. 17,000
involvement with the investee and has the B. b. 20,000
ability to affect those returns through its C. c. 6,500
power over the investee. D. d. 9,500
C. The contractually agreed sharing of control of
an arrangement, which exists only when 26. PADAYON Company revealed inventory on
decisions about the relevant activities require December 31, 2023 at P3,250,000 based on a
the unanimous consent of the parties sharing physical count priced at cost and before any
control. necessary adjustments for the following:
D. The power to govern the financial and
operating policies of an entity so as to obtain  Merchandise costing P380,000, shipped to
benefits from its activities. customer FOB shipping point on December 28,
2023, arrived at the customer location on January
6, 2024.
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 Merchandise costing P300,000 shipped FOB 30. Which statement is incorrect regarding property,
Destination from a vendor on December 31, 2023, plant and equipment (PPE)?
was received on January 5, 2024. A. PPE are tangible items that are held for use in
the production or supply of goods or services,
 Merchandise costing P120,000 was being held on for rental to others, or for administrative
consignment by Colombia Company, a consignee purposes; and are expected to be used during
of Empire Company. more than one period.
B. The cost of an item of PPE shall be recognized
What amount should be reported as inventory on as an asset if, and only if, it is probable that
December 31, 2023? future economic benefits associated with the
A. 4,050,000 item will flow to the entity and the cost of the
B. 3,370,000 item can be measured reliably.
C. 3,750,000 C. An item of PPE should be measured on initial
D. 3,250,000 recognition at its cost.
D. PPE are presented in the statement of
27. An entity had 150,000 units of product A on hand at financial position either as current or non
January 1 costing P21 each. Purchases of product A current.
during the month of January were:
Units Unit cost 31. An entered into a contract to a contract to acquire a
January 10 200,000 22 new machine which had a cash price of P2,000,000.
22 250,000 23 Down payment 400,000
18 100,000 24 Note payable in 3 equal
A physical count on January 31 shows 250,000 units of annual installments 1,200,000
product A on hand. What is the cost of the inventory on 20,000 ordinary shares with a par
January 31 under the FIFO method? value of P25 and fair value of
A. 5,850,000 P40 per share 800,000
B. 5,550,000
C. 5,350,000 Prior to use, installation cost of P50,000 was incurred
D. 5,250,000 The machine had an estimated residual value of
100,000. What is the initial cost of the machine?
28. Inventory is subsequently measured at A. 2,000,000
A. Cost B. 2,400,000
B. Net realizable value C. 2,050,000
C. Lower of Cost and Net realizable value D. 2,450,000
D. Fair value
32. Costs directly attributable to bringing the asset to
29. An entity provided the following inventory data at the location and condition necessary for it to be
year-end: capable of operating in the manner intended by
COST NRV management exclude
Skis 2,200,000 2,500,000 A. Installation and assembly costs.
Boots 1,700,000 1,500,000 B. Costs of testing whether the asset is
Ski Equipment 700,000 800,000 functioning properly.
Ski apparel 400,000 500,000 C. Professional fees.
D. Costs of opening a new facility.
What amount should be reported as inventory at year
end? 33. A Company purchased a vehicle costing P2,500,000
A. 5,000,000 on January 1, 2023. The useful life in years is 5 years
B. 5,300,000 while the useful life in miles is 100,000 miles. The
C. 4,800,000 vehicle has a residual value of P500,000. Actual miles
D. 5,200,000 driven in 2023, 2024 and 2025 were 30,000, 20,000,
and 15,000 respectively. What amount of depreciation
for 2024 should be reported using sum of the year's
digits?
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A. 666,667 39. On January 1, 2025, STC Company received a grant

B. 533,333 of P25,000,000 from the U.S. government to
C. 500,000 defray safety and environmental costs within the
D. 400,000 area where the entity is located. The safety and
environmental costs are expected to be incurred
34. Which of the following statements best describes over four years as follows:
the term "depreciation"? 2025 P2,000,000
A. The systematic allocation of the cost of an 2026 4,000,000
asset less residual value over the useful life 2027 6,000,000
B. The removal of an asset from the statement of 2028 8,000,000
financial position What amount of income from the government grant
C. The amount by which the recoverable amount should be recognized in 2025?
of an asset exceeds carrying amount A. 25,000,000
D. The amount by which the carrying amount of B. 2,000,000
an asset exceeds recoverable amount C. 2,500,000
D. 6,250,000
35. Depreciation of an asset begins
A. When it is available for use. 40. On February 20, 2019, KERIBELS Company incurred
B. When it is actually used. cost of P36,000,000 to acquire and prepare to
C. When it is retired from active use. extract an estimated 4,000,000 tons of mineral
D. When it is derecognized. deposits. The entity mined 500,000 tons of ore in
2019. On December 31, 2020, Geologists estimated
36. POSITIVE COMPANY borrowed P4,000,000 on a 10% that 3,000,000 tons of ore still remained. The entity
note payable to finance new warehouse which the mined 600,000 of ore in 2020. What amount should
entity is constructing for own use. The only other be recorded as depletion for 2019?
debt of the entity is a P6,000,000, 12% mortgage A. 4,500,000
payable on an office building. At the end of the B. 2,250,000
current year, average accumulated expenditures on C. 6,000,000
the new warehouse totaled 4,750,000. What D. 3,000,000
amount should be capitalized as interest for the
current year? 41. Using the same problem above, what amount
A. 400,000 should be recorded as depletion for 2020?
B. 475,000 A. 5,250,000
C. 490,000 B. 6,300,000
D. 522,500 C. 7,200,000
D. 6,000,000
37. Borrowing costs that are directly attributable to the
acquisition, construction or production of a 42. What is impairment of an asset?
qualifying asset shall be recognized as A. A fall in the market value of an asset so that
A. Part of the cost of asset. the recoverable amount is less than carrying
B. Expense in the period incurred amount
C. Either a or b B. A decline in value of an asset so that the
D. Neither a nor b recoverable amount is more than the carrying
amount
38. Government grant shall be recognized when there is C. An allocation of cost over the useful life of an
reasonable assurance asset
A. The entity will comply with the conditions of D. A change in the estimated useful life of an
the grant asset
B. The grant will be received
C. The entity will comply with the conditions of 43. CPA Company had an equipment with carrying
the grant and the grant will be received amount of 4,500,000 at year end: Recoverable amount
D. The grant must have been received Fair value of similar asset 4,150,000
Recoverable Amount 4,200,000
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What amount should be reported as impairment loss D. Legal costs paid to intellectual property
for the current year? lawyers to register a patent.
A. 300,000 47. What valuation methods are used for intangible
B. 350,000 assets?
C. 50,000 A. Cost model and fair value model
D. 0 B. Revaluation model and fair value model
C. Cost model and fair value through profit or
44. Which of the following statements best describes loss model
investment property? D. Cost model and revaluation model
A. Property held for sale in the ordinary course of
business 48. An entity is engaged in raising diary livestock. The
B. Property held for sale in the production and entity provided the following information during the
supply of goods or services and property held current year:
for administrative purposes Carrying amount on Jan 1 5,000,000
C. Property held to earn rentals or for capital Increase due to purchases 2,000,000
appreciation Gain arising from change in fair
D. Property held for capital appreciation value less cost of disposal
due to price change 400,000
45. Quirino, Inc. and its subsidiaries have provided you, Gain arising from change in fair
their PFRS specialist, with a list of the properties value less cost of disposal
they own due to physical change 550,000
 Land held by Quirino, Inc. for undetermined future Decrease due to sales 850,000
use, P5,000,000. Decrease in fair value due to Harvest 200,000
 A vacant building owned by Quirino, Inc. and to be What amount should be reported as biological asset on
leased out under an operating lease, P20,000,000. December 31?
 Property held by a subsidiary of Quirino, Inc., a real A. 6,900,000
estate firm, in the ordinary course of its business, B. 7,000,000
P30,000,000. C. 7,950,000
 Property held by Quirino, Inc. for use in production, D. 6,700,000
P1,000,000.
 A hotel owned by Sugo, Inc., a subsidiary of Quirino, 49. Biological assets
Inc., and for which Sugo, Inc. provides security A. a. Are found only in Biotech entities.
services for its guests' belongings, P50,000,000. B. b. Are living animals or living plants and must
 A building owned by Quirino, Inc. being leased out be disclosed as a separate line item
to Status, Inc, a subsidiary of Quirino, Inc., C. c. Must be valued at cost
P20,000,000. D. d. Do not generally have future economic
How much will be reported as investment properties in benefits
Quirino, Inc. and its subsidiaries consolidated financial
statements? 50. How shall the non-current assets held for sale be
A. P75,000,000 presented in the financial statement?
B. P25,000,000 A. Current asset
C. P95,000,000 B. Non current asset
D. P45,000,000 C. Current liability
D. Non current liability
46. Which of the following items would qualify as an
intangible asset? 51. An entity accounted for noncurrent assets using
A. Advertising and promotion on the launch of cost model. On December 31, 2023, the entity classified
huge product a noncurrent asset as held for sale. At such date, the
B. College tuition fees paid to employees who carrying amount of an asset was P4,500,000, the fair
decide to enroll in an executive MBA program. value was estimated at P3,300,000 and the cost of
C. Operating losses during the initial stages of disposal at P450,000. On December 31, 2024, the asset
the project. was sold for net proceeds of P2,400,000. What amount
should be reported as impairment loss for 2023?
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A. 1,650,000 B. The issuer shall classify the liability and equity

B. 1,200,000 components of a compound instrument
C. 2,100,000 separately as liability or equity instrument.
D. 0
C. The issuer shall classify a compound
52. Car Company disclosed the following liability instrument as liability in its entirety.
account balances on December 31, 2020:
Accounts payable 1,900,000 D. The issuer shall classify a compound
Bonds payable 3,400,000 instrument as a liability in its entirety.
Premium on Bonds payable 200,000
Deferred tax liability 400,000 57. How are the proceeds from a compound instrument
Dividends payable 500,000 allocated between liability and equity?
Income tax payable 900,000 A. The liability is measured at fair value and the
Note payable, due 1/31/2021 600,000 remainder is allocated to the equity
On December 31, 2020, what total amount should be B. The proceeds are allocated to the liability and
reported as current liabilities? equity based on relative fair value.
A. 7,100,000 C. The proceeds are allocated to the liability and
B. 4,300,000 equity based on carrying amount.
C. 3,900,000 D. The proceeds are not allocated.
D. 4,100,000
58. Which is the correct definition of a provision?
53. Which is not a characteristic of liability? A. A possible obligation arising from past events.
A. It represents a transfer of an economic B. A liability of uncertain timing or uncertain
resource. amount.
B. It must be payable in cash. C. A liability which cannot be easily measured.
C. It arises from present obligation to other D. An obligation to transfer funds to an entity.
entity.
D. It results from transactions or event. 59. On November 5, 2020, A Pancake Company truck
was in an accident with an auto driven Bell. The
54. On January 1, 2023, an entity issued 9% bonds in entity received notice on January 12, 2021 of a
the face amount of P5,000,000 which mature on lawsuit for P700,000 damages for personal injuries
January 1, 2033. The bonds were issued for suffered by Bell. The entity's counsel believed it is
P4,695,000 to yield 10%. Interest is payable probable that Bell will be awarded an estimated
annually on December 31. The entity used the amount in the range between P200,000 and
interest method of amortizing bond discount. What P500,000. The possible outcomes are equally likely.
amount should be reported as interest expense for The accounting year ends on December 31 and the
2023? 2020 financial statements were issued on March
A. 469,500 31, 2021. What amount of provision should be
B. 500,000 accrued on December 31, 2020?
C. 450,000 A. 0
D. 422,500 B. 200,000
C. 500,000
55. Refer to item 54, What is the carrying amount of the D. 350,000
bonds payable on December 31, 2023?
A. 4,695,000 60. Which best describes an Accounts payable?
B. 4,704,750 A. A trade payable
C. 4,714,500 B. A nontrade payable
D. 5,000,000 C. A compound financial instrument
D. Cannot be determined
56. What is the principal of accounting for a compound
instrument? 61. How are accrued expenses presented?
A. The issuer shall classify a compound A. Current liability
instrument as either liability or equity. B. Non-current liability
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C. Secret A. Short-term lease

D. Equity B. Low value lease
62. GABE COMPANY, lessor, leased an equipment under C. Both short-term and low value lease
an operating lease. The lease term is 5 years and D. Under all circumstances
the lease payments are made in advance on January
1 of each year as shown in the following schedule: 68. An arrangement whereby one party sells an asset to
January 1, 2020 1,000,000 another party and immediately leases the asset
January 1, 2021 1,000,000 back from the new owner.
January 1, 2022 1,400,000 A. Direct financing lease
January 1, 2023 1,700,000 B. Operating lease
January 1, 2024 1,900,000 C. Sale and leaseback
On December 31, 2021, what amount should be D. Right of use asset
reported as rent receivable?
A. 1,400,000 69. At the beginning of current year, an entity sold an
B. 800,000 equipment with remaining life of 10 years and
C. 400,000 immediately leased it back for 4 years at the
D. 0 prevailing market rental.
Sale price at fair value 6,000,000
63. As an inducement to enter a lease, a lessor granted CA of equipment 4,500,000
a lessee nine months of free rent under a 5-year Annual rental payable at the
operating lease. The lease is effective on April 1, end of each year 800,000
2023 and provided for monthly rental of P100,000 Implicit interest rate 10%
to begin on January 1, 2024. What amount should Present value of an ordinary
be reported as rent income for 2023? annuity of 1 at 10% for
A. 1,020,000 four periods 3.17
B. 1,200,000 What is the initial lease liability?
C. 765,000 A. 2,536,000
D. 0 B. 3,200,000
C. 3,000,000
64. Using the same problem above, What amount D. 0
should be reported as rent receivable on December
31, 2024? 70. The seller under sale and leaseback becomes
A. 900,000 A. Seller-lessee
B. 585,000 B. Buyer-lessor
C. 665,000 C. Seller-dealer
D. 0 D. Superman

65. The lease term begins

A. At the inception date.
B. At the commencement date.
C. Earlier of a and b.
D. later of a and b.

66. At the commencement date, a lessee shall measure

the right-of-use asset at
A. Cost - END -
B. Fair value
C. Lower of cost and net realizable value
D. Lower of cost and fair value

67. The lessee may apply the operating lease model

under what condition?