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REVIEWER FOR QUALIFYING EXAMINATION

FINANCIAL ACCOUNTING & REPORTING

The objective of general purpose financial reporting as described in the Conceptual Framework
is to *

Provide information to regulators

Support the entity's tax return
Meet the information needs of an entity's stakeholders
Provide financial information about the reporting entity that is useful to existing and potential investors,
lenders and other creditors in making decisions relating to providing resources to the entity

A reporting entity can be *

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A portion of an entity
A single entity
More than one entity
All of the above
 
None of the above

 
In selecting a measurement basis for an asset or liability, it is more important to consider the
nature of the information that the measurement basis will produce in the statement(s) of
financial performance than in the statement of financial position *
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True
False
 
 
An analysis of income and expenses recognised in the statement of profit or loss is sufficient
to understand an entity's financial performance for the period *
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True
 
False

Correct answer
False

 
Which statement is included in the Conceptual Framework? *
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Relevance is a fundamental qualitative characteristic of useful financial information

Financial information without both relevance and faithful representation is not useful
Enhancing qualitative characteristics cannot make information useful if that information is irrelevant or
does not provide a faithful representation of what it purports to represent

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All of the above
 
None of the above

 
Some items that do NOT meet the definition of an asset, a liability or equity may be recognised
in the statement of financial position *
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True
False
 
Feedback

Those do not meet the recognition of an asset cannot be recognized as such. If it MEETS the definition but is
either not relevant or not capable of faithful representation, consider whether such unrecognized asset or liability
is to be included in the notes

 
Entities have to apply the revised Conceptual Framework *
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Immediately after it is issued

For annual reporting periods beginning on or after 1 January 2020, with early application permitted
 
Never - the Conceptual Framework is only used by the International Accounting Standards Board
Whenever they want to

 
A high level of measurement uncertainty associated with an asset always results in the asset
not being recognised *
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True
 
False

Correct answer
False

Feedback

Not always. It is possible for reasonable estimates to be made even when there is a high level of measurement
uncertainty. Only when it is not possible to have a reasonable estimate it will not be recognized

 
All of the following represent costs of providing financial information except *
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Preparing
Disseminating
Auditing
Accessing capital
 
 

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General purpose financial statements *
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Are those intended to meet the needs of users who are not in a position to require an entity to prepare
reports tailored to their particular information needs
 
Provide all of the information that financial statements’ users need
Are designed to show the value of a reporting entity since they provide information to help existing and
potential investors, lenders and other creditors to estimate the value of the reporting entity
All of the above

 
Which statement is incorrect regarding the definition of an asset? *
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An asset is a present economic resource controlled by the entity as a result of past events
An economic resource is a right that has the potential to produce economic benefits
It clarified that an asset is the economic resource, not the ultimate inflow of economic benefits
 
It needs to be certain or likely that economic benefits will arise

Correct answer
It needs to be certain or likely that economic benefits will arise

Information about income and expenses is *

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Less important as information about assets and liabilities

More important as information about assets and liabilities
Just as important as information about assets and liabilities
 
Not important

 
In accordance with the Conceptual Framework, historical cost *
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Provides information derived, at least in part, from the price of the transaction or other event that gave rise
to the item being measured
 
Is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction
between market participants at the measurement date
Reflects entity-specific current expectations about the amount, timing and uncertainty of future cash flows
Reflects the current amount that would be paid to acquire an equivalent asset or received to take on an
equivalent liability

 
Which concept of capital should be adopted by an entity if the users of financial statements are
primarily concerned with the maintenance of nominal invested capital or the purchasing power
of invested capital? *
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Financial concept
 
Physical concept
Contemporary capital
Traditional capital

 
Which capital maintenance concept requires the adoption of the current cost basis of
measurement? *
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Financial concept
Physical concept
 
Contemporary capital
Traditional capital

Cash and Cash Equivalents

1. Which statement is true?

a. Certificates of deposit are usually classified as cash on the statement of financial position.
b. Companies include postdated checks and petty cash funds as cash.
c. Cash equivalents are investments with original maturities of six months or less.
d. Savings accounts are usually classified as cash on the statement of financial position.

2. Which statement is incorrect regarding cash equivalents?

a. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than
investment for other purposes
b. An investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three
months or less from the date of acquisition.
c. Both a and b.
d. Neither a nor b.

3. Which of the following may qualify as cash equivalents?

a. Investment in ordinary shares
b. Investment in share options
c. Investment in preference shares acquired within a short period of their maturity and with a specified
redemption date
d. None of these

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4. The following data pertain to Pauline Corporation on December 31, 2020:

Current account at Metrobank 900,000

Current account at Allied Bank (50,000)

Payroll account 250,000

Foreign bank account (in equivalent pesos) 400,000

Savings deposit in a closed bank 75,000

Postage stamps 500

Employee’s postdated check 2,000

IOU from employees 5,000

Credit memo from a vendor for a purchase return 10,000

Traveler’s check 25,000

Money order 15,000

Petty cash fund (P2,000 in currency and expense receipts for P3,000) 5,000

Pension fund 1,000,000

DAIF check of customer 7,500

Customer’s check dated 1/1/21 40,000

Time deposit – 30 days 100,000

Money market placement (due 6/30/21) 250,000

Treasury bills, due 3/31/21 (purchased

12/31/20) 100,000

Treasury bills, due 1/31/21 (purchased 2/1/20) 150,000

The cash and cash equivalents as of December 31, 2020 is

a. P1,392,000 c. P1,892,000
b. P1,542,000 d. P1,792,000

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5. Claire Corporation had the following account balances at December 31, 2020:
Cash on hand and in bank 1,250,000

Cash restricted for bonds payable due on June 30, 2021 500,000

Time deposit 1,500,000

Savings deposit set aside for dividends payable on June 30, 2021 250,000 The total amount
to be reported as cash and cash equivalent as of December 31, 2020 is
a. P3,500,000 c. P3,250,000
b. P3,000,000 d. P2,750,000
6.
6.
6.
6.
6.
6.
6.
6.
6.
6.
6.
On December 31, 2020, Allan Company had the following cash balances:
Cash in bank P7,500,000

Petty cash fund 25,000

Time deposit 2,500,000

Saving deposit 1,000,000

Cash in bank includes P250,000 of compensating balance against short term borrowing arrangement at
December 31, 2020. The compensating balance is legally restricted as to withdrawal by Allan. A check of
P150,000 dated January 15, 2021 and in payment of accounts payable was recorded and mailed on

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December 31, 2020. In the current assets section of the December 31, 2020statement of financial
position, what amount should be reported as “cash and cash equivalents”?
a. P10,925,000 c. P10,900,000
b. P8,425,000 d. P7,425,000

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7. A petty cash system

a. Cash checks for employees
b. Handle cash sales
c. Account for all cash receipts and disbursements
d. Pay small miscellaneous expenses

8. Which of the following is true regarding the imprest petty cash system?
a. Entries are made to the Petty Cash account only to increase or decrease the size of the fund
b. The Petty Cash account is debited when the fund is replenished.
c. The imprest petty cash system in effect adheres to the rule of disbursement by check.
d. d. All of these are not true.

9. A cash short or over account

a. Is not generally accepted
b. Is debited when the petty cash fund proves out over
c. Is debited when the patty cash fund proves out short
d. Is a contra account to cash

10. On December 31, 2020, the cash account of Minerva Company has a debit balance of P1,750,000. An
analysis if the cash account shows the following details:
Undeposited collections 30,0
00
Cash in bank – PCIB checking account 250,0
00
Cash in bank – PNB (overdraft) (25,00
0)
Undeposited NSF check received from a
customer, dated December 1, 2020 7,500
Undeposited check from a customer, dated
January 15, 2021 12,5
00
Cash in bank – PCIB (fund for payroll) 75,0
00
Cash in bank – PCIB (savings deposit) 50,0
00
Cash in bank – PCIB (money market instrument,
90 days) 1,000,00
0
Cash in foreign bank (restricted) 50,000
IOUs from officers 15,000
Sinking fund cash 225,000
Listed stock held as temporary investment 60,000
P1,750,00
0
Cash and cash equivalents on Minerva’s December 31, 2020 statement of financial position should be
a. P1,380,000 c. P1,442,500

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b. P1,405,000 d. P1,467,500

11. Rosimlyn Corporation’s checkbook balance on December 31, 2020, was P400,000. In addition, Rosimlyn
held the following items in its safe on December 31:
Check payable to Rosimlyn Corporation, dated January 2, 2021, not included in December 31
checkbook balance P100,000

Check payable to Rosimlyn Corporation, deposited December 20, and included in December
31 checkbook balance, but returned by bank on December 30, stamped “DAIF”. The
check was redeposited January 2, 2021, and cleared January 7. 20,000

Check drawn on Rosimlyn Corporation’s account payable to a vendor, dated and recorded
December 31, but not mailed until

January 15, 2021 50,000

The proper amount to be shown as cash on Rosimlyn’s statement of financial position at

December 31, 2020, is

a. P380,000 c. P430,000
b. P400,000 d. P487,500

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12. Joann Co.’s ledger showed a balance in its cash account at December 31, 2016 of P682,250 which was
determined to consist of the following:
Petty cash fund P3,600
Cash per bank statement with a check for P6,000
still outstanding 336,75
0
Notes receivable in the possession of a collecting
agency 25,000
Undeposited receipts, including postdated check
for P10,500 and traveler’s check for P10,000 178,00
0
Bond sinking fund – cash 127,50
0
IOUs signed by employees 4,950
Paid vouchers not yet recorded 6,450
Total P682,25
0
At what amount should “Cash on hand and in bank” be reported on Joann’s balance sheet?
a. P534,750 c. P662,250
b. P501,850 d. P629,350

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13. The following items were included as cash in the books of Wama Co.:
Checking account at Security Bank (P2,40
0)
Checking account at BPI 10,6
70
Checking account at Citytrust used for payment
of salaries 11,0
00
Postage stamps 214
Employee’s post-dated check 4,600
I.O.U. from an employee 400
A check marked “DAIF” 2,500
Postal money order 1,000
Petty cash fund (P648 in expense receipts) 1,000
Certificate of time deposit with BPI 10,000

A gold ring surrendered as security by a customers who lost his wallet (at
market value) 3,000

The correct amount that should be reported as cash is

a. P23,670 c. P33,022
b. P22,022 d. P23,022

Bank Reconciliation

14. If the cash balance shown on in a company's bank statement is more than the correct cash balance
and neither the company nor the bank has made any errors, there must be
a. Deposits in transit
b. Outstanding checks
c. Bank charges not yet recorded by the entity
d. Deposits credited by the bank but not yet recorded by the entity

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15. If the cash balance shown in a company’s accounting records is more than the correct cash balance
and neither the company nor the bank has made any errors, there must be
a. Deposits in transit
b. Outstanding checks
c. Bank charges not yet recorded by the entity
d. Deposits credited by the bank but not yet recorded by the entity

A. Adjusted Balance Method

16. The following data pertaining to the cash transactions and bank account of Ella Company for the month of
May are available to you:

Cash balance, per records, May 31 P34,388

Cash balance, per bank statement, 5/31 63,896

Bank service charge for May 218

Debit memo for the cost of printed checks delivered by the bank 250

Outstanding checks, May 31 13,456

Deposit of May 30 not recorded by bank until June 1 9,760

Proceeds of a bank loan of May 30, net of interest of

P600 11,400

Proceeds from a customer’s promissory note, including interest of P200 16,200

Check No. 2772 issued to a supplier entered in the accounting records at P4,200
but deducted in the bank statement at an erroneous amount of 2,400

Stolen check lacking an authorized signature, deducted from Ella’s account by the
bank in error 1,600

Customer’s check returned by the bank marked NSF; no entry has been made in
the accounting records to record the returned check 1,520

What is the correct cash balance at May 31?

a. P58,400 c. P60,000
b. P60,600
d.
P61,800

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17. As of June 30, the bank statement of Virgie Trading had an ending balance of P373,612. The following
data were assembled in the course of reconciling the bank balance:  The bank erroneously credited
Virgie Trading for P2,150 on June 22.
• During the month, the bank charged NSF checks amounting to P2,340 of which P800 had been
redeposited by the 25th of June.
• Collection for June 30 totalling P10,330 was deposited the following month.
• Checks outstanding as of June 30 were P30,205.
• Notes collected by the bank for Virgie Trading were P8,150 and the corresponding bank charges were
P50.
The adjusted bank balance on June 30 is
a. P351,587 c. P353,927
b.P358,147 d. P359,687

18. Part of Tisay Co.’s unadjusted trial balance at December 31 showed a Cash balance of P34,800. The
balance per bank statement was P24,000 on December 31. Outstanding checks amounted to P13,800.
Interest of P80 was credited to the enterprise’s account by the bank during December, but has not yet
been entered on the company’s books.

Assuming no errors exist in the company’s cash balance, deposits in transit at December 31 amount to

a. P10,800 c. P24,600
b. P24,520 d. P24,680

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19. The bookkeeper of Drogon Co. recently prepared the following bank reconciliation:
Santa Clara Co.
Bank Reconciliation
December 31

Balance per bank statement P252,8

40
Add:
Deposit in transit P17,400
Checkbook printing charge 420
Error made in recording check no. 25 (issued in
December) 3,200
NSF check 10,000 31,020

P283,860 Deduct:
Outstanding checks P8,960

Note collected by bank (includes P100 interest)

27,960
P255,900

19,000 Balance per book

Santa Claire has P18,200 cash on December 31.

The amount Drogon should report as cash on the balance sheet as of December 31 should be
a. P240,520 c. P261,280
b. P279,480 d. P264,480

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B. Bank to Book Method
20. The information below is from the books of Junjun Corporation on June 30:

Balance per bank statement P22,328

Receipts recorded but not yet deposited in the bank 2,680

Bank charges not recorded 32

Note collected by bank and not recorded on books 2,240

Outstanding checks 2,200

NSF checks – not recorded on books nor redeposited 320

Assuming no errors were made, compute the cash balance per books on June 30 before any
reconciliation adjustments.

a. P22,808 c. P20,9
b. P24,696 20
d. P20,4
40

C. Book to Bank Method

21. The cash in bank account of BeBe, Inc. for April showed an ending balance of P258,596. Deposits in transit
on April 30 was P36,400. Outstanding checks as of April 30 were P118,870, including a P10,000 check
which the bank had certified on April 27. During the month of April, the bank charged back NSF checks in
the amount of P6,870 of which P3,670 had been redeposited by April 20. On April 23, the bank charged
BeBe’s account for a P4,400 items which should have been charged against CeCe, Inc., the error was not
detected by the bank. During April, the proceeds from notes collected by the bank for BeBe, Inc. was

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P15,096 and bank charges for this service was P36. How much is the unadjusted balance per bank on April
30?

a. P190,526 c. P347,326
b. P176,666 d. P338,526

ACCOUNTS RECEIVABLE

Which of the following are incorrect regarding presentation of receivables in the statement of
financial position? *
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Which of the following are incorrect regarding presentation of receivables in the statement of financial
position?
Trade receivables are reported under current assets.
Non-trade receivables are included in the line item ‘trade and other receivables;’ if they are expected to be
realized within twelve months after the reporting period.
Non-trade receivables are reported as non-current if they are not expected to be realized within twelve
months after the reporting period.
 
None of these.

 
The following are normally included in the line item trade and other receivables, except  *
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Advances to officers and employees

Advances to subsidiaries and affiliates

Receivable from sale of securities or property other than inventory

Dividends and interest receivable
 
 

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3. On the December 31, 2020, the statement of financial position of Chloe Ting Company, the
receivables consisted of the following. How much should be reported as trade and other
receivables in Mann’s December 31, 2020 statement of financial position? *
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P188,000

P136,000
 
P240,000
P300,000

 
Receivables not measured initially at their transaction price are measured initially at *
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Fair value
Fair value less costs to sell
Fair value minus transaction costs that are directly attributable to the acquisition of the financial asset.
Fair value plus transaction costs that are directly attributable to the acquisition of the financial asset
 

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The ideal measure of short-term receivables in the statement of financial position is the
discounted value of the ash to be perceived in the future, failure to follow this practice usually
does not make the statement of financial position misleading because *
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The amount of the discount is not material.

Most short-term receivables are not interest bearing.

 
The allowance for uncollectible accounts includes a discount element.
Most receivables can be sold to a bank or factor.

 
Lipovetsky Corp. has the following data relating to accounts receivable at the end of the current
year. What is the net realizable value? *
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P2,748,000
P1,880,000
 
P1,758,000

P1,752,000

 
The following relate to ‘trade discounts’, except *
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Not recorded in the accounts; rather they are a means of computing a price.
Used to avoid frequent changes in catalogues.
Used to quote different prices for different quantities purchased.
 
Normally given to encourage prompt payment

 
An advantage of using the net price method of recording cash discounts on credit sales is  *
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It simplifies recording of sales returns and allowances.

 
It eases communication with customers about their balances.
It requires less record-keeping efforts than the gross method.
It properly reflects current period sales revenue.

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On June 9, Mark Ballenger Corp. sold merchandise with a list price of P10,000 to Bethany on
account. Mark allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the
sale was made FOB shipping point. Mark prepaid P400 of delivery costs for Bethany as an
accommodation. On June 25, Mark received from Bethany a remittance in full payment
amounting to *
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P5,488
P5,880
P5,888
 
P6,000

 
The Steven Furtick Company uses the net price method of accounting for cash discounts. In
one of its transactions on December 15, Steven sold merchandise with a list price of P250,000
to a client who was given a trade discount of 20% and 15%. Credit terms were 2/10, n/30. The
goods were shipped FOB destination, freight collect. On December 20, the client returned
damaged goods originally billed at P30,000. Total freight charges paid by the buyer amounted
to P3,750. What is the net realizable value of this receivable on December 31? *
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P136,250

P137,200
P140,000
 
P166,600

Why is the allowance method preferred over the direct write-off method of accounting for bad
debts? *
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Allowance method is used for tax purposes.

Estimates are used.
Determining worthless accounts under direct write-off method is difficult to do.
 
Improved matching of bad debt expense with revenue.

 
A company uses the allowance method to recognize uncollectible accounts expense. What is
the effect at the time of the collection of an account previously written off on allowance for
uncollectible accounts and uncollectible accounts expense, respectively? *
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No effect; Decrease
Increase; Decrease
 

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Increase; No effect

No effect; No effect

 
Taylor R, Inc. reported the following balances (after adjustment) at the end of 2020 and 2019.
During 2020, Taylor wrote off customer accounts totaling P6,400 and collected P1,600 on
accounts written off in previous years. Taylor’s doubtful accounts expense for the year ending
December 31, 2020 is *
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P3,000
P4,800
 
P6,000
P7,800

 
Erwan Heussaf Company provides for doubtful accounts expense at the rate of 3% of credit
sales. The following data are available last year. The allowance for doubtful accounts balance
at December 31, after adjusting entries, should be *
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P90,000
P168,000
 
P180,000
P198,000

 
On January 1, 2020, the balance of accounts receivable of Karlie Kloss Company was
P2,500,000 and the allowance for doubtful accounts on same date was P400,000. The
following data were gathered. Doubtful accounts are provided for as percentage of credit sales.
The accountant calculates the percentage annually by using the experience of three years prior
to the current year. How much should be reported as 2020 doubtful accounts expense? *
1/1

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P375,000
 
P406,250
P165,000
P437,500

 
Asian Boss Corp. has the following data relating to accounts receivable for the year ended
December 31, 2020. An analysis of cash received from customers during the year revealed that
P705,600 was received from customers availing the 10-day discount period, P396,000 from
customers availing the 15-day discount period, P2,400 represented recovery of accounts
written-off, and the balance was received from customers paying beyond the discount
period.The allowance for doubtful accounts is adjusted so that it represents a certain
percentage of the outstanding accounts receivable at year end. The required percentage at
December 31, 2020 is 125% of the rate used on December 31, 2019.The doubtful accounts
expense for 2020 is *
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P3,440
P3,560
 
P4,360
P4,480

 
The accounts receivable subsidiary ledger of Haegreendal Corporation shows the following
information. The Allowance for Doubtful Accounts had a credit balance of 7,000 on December
31, 2019, before adjustment.The adjusting journal entry to adjust the allowance for doubtful
accounts as of December 31, 2019 will include a debit to doubtful accounts expense of  *
1/1

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P26,397.60
P19,397.60
P12,397.60
 
P7,000

PRESENTATION
1. The statement of financial position of a reporting entity presents a structured summary of the
a. Assets, liabilities and equity at the reporting date
b. Cash receipts and payments of cash during the period
c. Profits and losses not reported in income of the period
d. Revenue and expenses arising during the reporting period

2. Under PAS 1, assets in the statement of financial position are broadly classified into

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a. Current and non current c. Depreciable and non-depreciable
b. Tangible and intangible d. Monetary and non-monetary

3. Under PAS 1, which of the following does not refer to a current asset?
a. It is held primarily for the purpose of being traded
b. It is a cash or cash equivalent restricted for more than 12 months from cut off date
c. It is expected to be realized within 12 months after the cut off date
d. It is expected to be realized, sold or consumed within the entity’s normal operating cycle

4. Offsetting of assets and liabilities is

a. Allowed in all cases c. Allowed unless not permitted by PFRS
b. Not allowed in all cases d. Not allowed unless permitted by PFRS

5. Which of the following is not an acceptable presentation of the statement of financial position?
a. Assets presented in the order of liquidity
b. Non-controlling interests presented within equity
c. Provisions presented as part of the liability section
d. Deferred tax liabilities presented as part of current liabilities

6. Which one of the following statements best describes the “going concern” assumption?
a. The expenses of an entity exceed its income
b. When current liabilities of an entity exceed current assets
c. The ability of the entity to continue in operation for the foreseeable future
d. The potential to contribute to the flow of cash and cash equivalents to the entity

7. Which of the following is not a feature of financial information’s comparability characteristic?

a. Comparability is not uniformity
b. A comparison requires at least two items
c. Consistency, although related to comparability, is not the same
d. Consistency is the goal, comparability help to achieve the goal

8. Consistency in financial reporting requires that

a. Gains and losses should not appear in the statement of financial performance
b. Effect of changes in accounting treatment to be properly disclosed
c. Accounting procedures be adopted that give a consistent rate of return
d. Expenses be reported as change against the period in which they are incurred

9. Comprehensive income refers to the changes in equity other than changes resulting from distribution to
and contribution from owners. Which of these is not a component of comprehensive income?
a. Losses c. Expenses
b. Revenue d. Dividends

10. Which statement is correct concerning comparative information?

I. Except when a standard or an interpretation permits or requires otherwise, comparative
information shall be disclosed in the respect of the previous period for all amounts reported in the financial
statements.
Page

II. Comparative information shall be included for narrative and descriptive information when it is
relevant to an understanding of the current period’s financial statements. a. I only
b. II only
c. Both I and II

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d. Neither I nor II

11. An entity shall present

a. The statement of cash flows more prominently than the other statements.
b. The statement of financial position more prominently than the other statements.
c. The statement of comprehensive income more prominently than the other statements.
d. Each financial statement with equal prominence.

12. In virtually all circumstances, a fair presentation is achieved by compliance with applicable
PFRS. A fair presentation requires an entity (choose the incorrect one)

a. To select and apply accounting policies in accordance with standards.

b. To present information including accounting policies, in a manner that provides relevant and
reliable information.
c. To provide additional disclosures when specific requirements of PFRS is insufficient to enable users
to understand the impact of particular transactions on the entity’s financial position and financial
performance.
d. To disclose inappropriate accounting policies used either by notes or explanatory material without
rectification.

13. Which is incorrect concerning the concept of materiality and aggregation?

a. Materiality depends on the size and nature of the item judged in the particular circumstances of its
omission or misstatements.
b. Materiality provides that the specific disclosure requirements of a PFRS must be met even if the
resulting information is not material.
c. Items of a dissimilar nature or function shall be presented separately unless they are immaterial.
d. Information is material if its nondisclosure could influence the economic decisions of users taken on
the basis of the financial statements.

14. COVID Company, a parent company has reported the following current account in its financial records as
of December 31, 2019:

Cash and cash equivalents P 3,000,000

Loans and receivables 20,000,000

Merchandise inventory 2,000, 000

Prepaid expense 500,000

Included in the loans and receivables is a P5,000,000 loan to VIRUS Company, a subsidiary. The loan is repayable
on demand but the demand feature is primarily a form of protection or a taxdriven feature of the loan and it is the
intention of both parties that the loan will remain outstanding for foreseeable future.

What is the correct amount of current asset should COVID Company report in its December 31, 2019 financial
position?

a. P 20,500,000 c. P 25,000,000
b. P 23,500,000 d. P 25,500,000

ANSWER: A. P20,500,000. The receivable from VIRUS Company will be classified as long-term since it is the
intention of both parties to collect or pay the loan on the foreseeable future. Since this is a transaction between
related parties, collection can be extended beyond 12 months.

15. CORONA, Inc. reported the following items on its December 31, 2019 adjusted trial balance:

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Accounts payable, net of P121,000 debit balance, P1,089,000; customer’s account with credit balance,
P120,000; advances to employees, P45,000; unearned commission income, P288,000; provision for
warranties, P258,000; provision for uncollectible accounts, P20,000; bonds payable, P5,000,000; discount
on bonds payable, P 250,000; deferred gain, P100,00 and Fair value adjustment on equity investment
(credit balance), P60,000.

What total amount of liabilities should be reported in the company’s statement of financial position?

a. P 6,626,000 c. P 6,746,000
b. P 6,726,000 d. P 6,786,000

ANSWER: (B) P6,726,000. COMPUTATION: Accounts payable (1,089,000 + 121,000) = 1,210,000; Customers
Account = P 120,000; Unearned commission = P 288,000; Provision for warranties = P258,000; Bonds Payable,
net (5,000,000 – 250,000) = P4,750,000; Deferred gain = P100,000, TOTAL = P 6,726,000.

Provisions for uncollectible accounts – contra asset account; Fair value adjustment on equity investement – other
comprehensive income

16. Presented below are account balances and related information on December 31, 2019 or COVID Company:

Cash on hand and in bank, P1,200,000; Accounts receivable, P950,000; Notes Receivable, P1,000,000;
Merchandise Inventory, P1,500,000; Prepaid Expenses, P400,000.

The following are relevant information related to the above accounts:

1. Included in the cash in bank account is a time deposit of P200,000 with a term of six months.
2. Provisions of P500,000 is to be made on the accounts receivable for future returns and discounts which
were considered probable
3. The accounts receivable includes a P500,000 assigned receivable, and P300,000 factored to a finance
company for which the company has transferred significant amount of risks and rewards of ownership.
4. The note receivable does not include a P200,000 discounted to a finance company for which the
company is contingently liable in case the maker fails to settle on March 31, 2020 (maturity date)
5. The merchandise inventory includes a P100,000 from a consignor
6. The prepaid expense is the total cost of two year insurance expiring on June 30, 2021.

What amount of current asset should be reported in the December 31, 2019 statement of financial position?

a. P 4,500,000 c. P 4,700,000
b. P 4,600,000 d. P 4,900,000

17. STAY is a full-service technology company. They provide equipment, and installation services as well as
training. Customers can purchase any product or service separately or as a bundled package. HOME
Corporation purchased computer equipment, installation and training for a total cost of P120,000 on
March 15, 2018. Estimated standalone fair values of the equipment, installation and training are P75,000,
P50,000 and P25,000 respectively. The journal entry to record the transaction on March 15, 2018 will
include a
a. Credit to Sales Revenue for P120,000
b. Debit to Unearned Service Revenue of P25,000
c. Credit to Unearned Service Revenue of P20,000
d. Credit to Service Revenue of P50,000

For items 18 – 21:

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The following trial balance of an entity on December 31, 2017 has been adjusted except for income tax
expense.

Cash 6,000,000
Accounts receivable 14,000,000
Inventory 10,000,000
Property, plant and equipment 25,000,000
Accounts payable 9,000,000
Income tax payable 6,000,000
Preference share capital 3,000,000
Ordinary share capital 15,000,00
0
Share premium 4,000,000
Retained earnings – January 1 9,000,000
Net sales and other revenue 80,000,00
0
Cost of goods sold 48,000,000
Expenses 12,000,000
Income tax expense 11,000,000 _________
_
126,000,000 126,000,00
0

During the year, estimated tax payments of P5,000,000 were charged to income tax expense. The tax rate
is 30% on all types of revenue. Inventory and accounts payable included goods purchased in transit, FOB
destination, costing P500,000, and unsold goods held on consignment at year-end, costing P300,000. The
perpetual system is used. The preference share capital is redeemable mandatorily on December 31, 2018.

18. What amount should be reported as current assets on December 31, 2017?

a. 29,200,000
b. 29,700,000
c. 29,500,000
d. 30,000,000

ANSWER: (A) 29,200,000. CASH – P6,000,000; ACCOUNTS RECEIVABLE – P14,000,000;

INVENTORY
– P9,200,000 (10,000,000 – 500,000 FOB DESTINATION – 300,000 CONSIGNMENT) = P 29,200,000

19. What amount should be reported as current liabilities on December 31, 2017?

a. 14,200,000
b. 17,200,000
c. 12,200,000
d. 9,200,000

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ANSWER: (C) 12,200,000

Net sales and other revenue 80,000,000

Cost of goods sold ( 48,000,000)
Expenses ( 12,000,000
Income before tax 20,000,000
Tax expense (30% x 20,000,000) ( 6,000,000
Net income 14,000,000

Tax expense 6,000,000

Payment during year (5,000,000) Income tax payable 1,000,000

Accounts payable 8,200,000

Income tax payable 1,000,000
Redeemable preference 3,000,000
Total current liabilities 12,200,000

Accounts payable per book 9,000,000

Goods in transit FOB destination ( 500,000)
Goods held on consignment ( 300,000) Adjusted accounts payable 8,200,000

20. What is the net income for 2017?

a. 20,000,000
b. 14,000,000
c. 23,000,000
d. 9,000,000

ANSWER: (B) 14,000,000. SEE ABOVE SOLUTION

21. What amount should be reported as total shareholders’ equity on December 31, 2017?

a. 40,000,000
b. 37,000,000
c. 45,000,000
d. 42,000,000

ANSWER: (D) 42,000,000. ORDINARY SHARE CAPITAL – P15,000,000; SHARE PREMIUM –

P4,000,000; RETAINED EARNINGS – P23,000,000 (9,000,000 BEG + 14,000,000 NET INCOME) =
SHAREHOLDERS’ EQUITY = P 42,000,000

For items 22 – 25:

An entity reported the following data for the current year:

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Net sales 9,500,000

Cost of goods sold 4,000,000
Selling expenses 1,000,000
Administrative expenses 1,200,000
Interest expense 700,000
Gain from expropriation of land 500,000
Income tax 800,000
Income from discontinued operations 600,000
Unrealized gain on equity investment at FVOCI 900,000
Unrealized loss on futures contract designated as a cash flow hedge 400,000
Increase in projected benefit obligation due to actuarial assumptions 300,000
Foreign translation adjustment – debit 100,000
Revaluation surplus 2,500,000
22. What amount should be reported as income from continuing operations?

a. 3,100,000
b. 2,300,000
c. 1,800,000
d. 2,900,000

ANSWER: (B) 2,300,000

Net sales 9,500,000

Cost of goods sold
(4,000,000)
Gross income 5,500,000
Gain from expropriation of land 500,000
Total income 6,000,000
Selling expenses 1,000,000
Administrative expenses 1,200,000
Interest expense 700,000 2,900,000
Income before tax 3,100,000
Tax expense
( 800,000)
Income from continuing operations 2,300,000

23. What net amount should recognized in other comprehensive income for the year?

a. 2,600,000
b. 3,100,000
c. 3,400,000
d. 800,000

ANSWER: (A) 2,600,000

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Unrealized gain on equity investment at FVOCI 900,000

Unrealized loss – cash flow hedge ( 400,000)
Actuarial loss – increase in PBO ( 300,000)
Translation adjustment – debit ( 100,000)
Revaluation surplus 2,500,000
Net gain - OCI 2,600,000

24. What amount should be reported as net income?

a. 2,900,000
b. 2,300,000
c. 3,100,000
d. 2,400,000

ANSWER: (A) 2,900,000

Income from continuing operations 2,300,000

Income from discontinued operations 600,000

Net income 2,900,000

25. What amount should be reported as comprehensive income?

a. 5,500,000
b. 2,900,000
c. 2,600,000
d. 6,100,000

ANSWER: (A) 5,500,000

Net income 2,900,000

Net gain – OCI 2,600,000
Comprehensive income 5,500,000

26. Jay Company provided the following information on December 31, 2019:
Accounts payable, net of debit balances of P100,000 in creditors’ accounts 1,900,000
Accrued expenses 500,000
Bonds payable due December 31, 2020 3,000,000
Discount on bonds payable 200,000
Deferred tax liability 400,000
Income tax payable 700,000
Cash dividend payable 800,000

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Stock dividend payable 300,000

Note payable – 6%, due March 1, 2020 1,500,000
Note payable – 8%, due October 1, 2020 1,000,000

The 2019 financial statements were issued on March 31, 2020. On March 1, 2020, the 6% note
payable was refinanced on a long-term basis. Under the loan agreement for the 8% note
payable, the entity has the discretion to refinance the obligation for at least twelve months after
December 31, 2019. The deferred tax liability is based on temporary differences that will reverse
in 2020. A sinking fund of P3,000,000 was set aside to pay the bonds payable upon maturity.
What amount should be reported as total current liabilities on December 31, 2019?

a. 8,300,000

b. 9,300,000
c. 9,000,000
d. 5,500,000

For items 27 – 30

The income statement accounts of Gringo Company for the year 2016 included the following:

Net sales 9,500,000

Cost of goods sold 4,000,000

Distribution cost 600,000

Administrative expenses 1,200,000

Interest expense 700,000

Other expense 400,000

Interest income 200,000

Gain from expropriation 100,000

Investment income 200,000

Income tax 800,000

Income from discontinued operations 600,000

Unrealized gain FA at FVTOCI 1,100,000

Foreign currency translation adjustment loss 200,000

Revaluation surplus 2,500,000

Dividends declared 1,000,000

Investments by stockholders 400,000

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Correction of an error-debit 3,000,000

27. The 2016 statement of comprehensive income should report income before income taxes at
what amount?
a. 3,000,000 c. 3,100,000
b. 2,300,000 d. 3,500,000

28. The 2016 statement of comprehensive income should report income from continuing operations
at what amount?
a. 3,200,000 c. 3,100,000
b. 2,300,000 d. 2,900,000

29. The 2016 statement of comprehensive income should report net income at what amount?
a. 3,400,000 c. 3,100,000
b. 2,300,000 d. 2,900,000

30. The 2016 statement of comprehensive income should report comprehensive income at what
amount?
a. 5,700,000 c. 6,300,000
b. 5,900,000 d. 6,500,000

31. The following information is available from Sand Corp.’s accounting records for the year ended
December 31, 2019:
Cash received from customers P870,000

Rent received 10,000

Cash paid to suppliers and employees 510,000

Taxes paid 110,000

Cash dividends paid 30,000

Net cash flow provided by operations for 2019 was

a. P260,000
b. P250,000
c. P230,000
d. P220,000

32. COVID Company reported the following balances as of December 31, 2019:
Net income P 1,000,000
Depreciation Expense 150,000
Gain on sale of equipment 200,000
Equipment, cost 2,000,000
Accumulated Depreciation_Equipment 500,000

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Increase in trademark 300,000

Decrease in Financial Asset at FVOCI 200,000
Increase in Notes Payable 500,000
Net cash flows provided by financing activities for 2019 was

a. P 1,600,000 c. P 1,400,000
b. P 1,500,000 d. P 1,000,000
ANSWER : 2,100,000

33. Romantic Corp.’s transactions for the year ended December 31, 2019, included the following:

Purchased real estate for P550,000 cash which was borrowed from a bank.

Sold available-for-sale investment securities for P500,000.

Paid dividends of P600,000.

Issued 500 shares of common stock for P250,000.

Purchased machinery and equipment for P125,000 cash.

Paid P450,000 toward a bank loan.

Romantic’s net cash used in investing activities for 2009 was

a. P175,000
b. P375,000
c. P675,000
d. P50,000

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