Financial Accounting and Reporting Problems Freebie PDF

TEST BANK
FINANCIAL ACCOUNTING and REPORTING

PROBLEMS
Accounting Process
1. Klaus Company followed the calendar year as the accounting period. The 2020 financial statements were authorized for
issue on March 15, 2021.
• On February 1, 2021, the entity determined that the total cost of the equipment purchased is P3,700,000. The
asset was purchased on November 12, 2020.
• On March 15, 2021, the entity discovered that the 2020 depreciation expense was overstated by P470,000.
• On March 20, 2021, the entity issued 100,000 ordinary shares at par of P10 per share.
• On March 27, 2021, the entity filed a case against another entity for patent infringement. The legal counsel
assessed that it is probable that the entity will win the case for an amount of P550,000.
What total amount should be reported as adjusting entries on December 31, 2020?
A. 3,700,000 C. 5,170,000
B. 4,170,000 D. 5,720,000
Balance Sheet
2. On December 31, 2020, Mark Company presented the following current assets:
Cash 3,200,000
Accounts receivable 2,000,000
Inventory 2,800,000
Initial direct cost in leasing equipment to a lessee in a 200,000
sale-s type lease
The accounts receivable consisted of the following items:

Customer’s accounts 1,420,000
Accounts receivable – assigned 240,000
(net of equity of consignee in accounts assigned, P60,000)
Advances to subsidiary 260,000
Allowance for sales return (120,000)
Claim against shipper for goods in transit 100,000
Subscription receivable due on December 31, 2021 100,000
What amount should be recognized as total current assets on December 31, 2020?
A. 7,740,000 C. 7,800,000
B. 7,700,000 D. 8,000,000
3. Omar Company presented the following information on December 31, 2020:
Cash 1,320,000
Investment securities held for trading,
including long-term investment of P550,000 on ordinary 2,200,000
shares
Inventories, including goods received on consignment of 880,000
P220,000
Prepaid expenses, including a deposit of P55,000 made on
inventories to be delivered in 15 months 165,000
Property, plant & equipment 11,000,000
Goodwill, solely based on skill of employees estimated by
the president 1,100,000
Total assets 16,665,000
Cash in general checking account 660,000

Sinking fund to retire bonds payable in 2022 550,000
Cash held to pay value added taxes 110,000
Total cash 1,320,000
What total amount of current assets should be reported on December 31, 2020?
A. 3,190,000 C. 3,740,000
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B. 3,245,000 D. 3,795,000
Questions 4 thru 6 are based on the following information.

Joanna Company provided the following trial balance on December 31, 2020 which has been adjusted except for income tax
expense:
Cash 600,000
Cost in excess of billings on long-term contracts 1,600,000
Billings in excess of cost on long-term contracts 700,000
Prepaid taxes 450,000

Property, plant & equipment, net 1,510,000
Note payable – noncurrent 1,620,000
Share capital 750,000
Share premium 2,030,000
Retained earnings unappropriated 900,000
Retained earnings, restricted for note payable 160,000
Earnings from long-term contracts 6,680,000

Costs and expenses 5,180,000
12,840,000 12,840,000
• The entity used the percentage-of-completion method to account for long-term construction contracts for financial and
income tax purposes. All receivables on these contracts are considered to be collectible within 12 months.
• During 2020, estimated tax payments of P450,000 were charged to prepaid taxes. The entity has not recorded income
tax expense. There were no temporary or permanent differences. The tax rate is 30%.
On December 31, 2020, what amount should be reported as
4. Total current assets?

A. 4,100,000 C. 5,700,000
B. 5,000,000 D. 6,225,000
5. Total noncurrent liabilities?
A. 1,620,000 C. 2,320,000
B. 1,780,000 D. 2,560,000
6. Total retained earnings?
A. 1,950,000 C. 2,400,000
B. 2,110,000 D. 2,560,000
Income Statement
7. Maria Company reported that the “Revenue” section of the single-step income statement for the current year consisted
of the following:
Net sales revenue 2,000,000

Loss from discontinued component, including loss on
disposal of P12,000, net of tax benefit of P40,000 125,000
Interest revenue 100,000
Gain on sale of equipment 50,000
Unrealized gain on available for sale financial asset 15,000
What total amount should be reported under the “Revenue” section of the income statement?
A. 2,100,000 C. 2,165,000
B. 2,150,000 D. 2,275,000
8. Carmela Company provided the following information for the current year:
Net sales 1,800,000
Freight in 45,000
Purchase discounts 25,000
Ending inventory 120,000
Gross margin on sales 40%
What is the cost of goods available for sale?

A. 840,000 C. 1,200,000
B. 960,000 D. 1,220,000
2
9. Troy Company reports operating expenses as selling and general and administrative. The adjusted trial balance at year-
end included the following:
Accounting and legal fees 25,000
Advertising 150,000
Freight out 80,000
Interest expense 70,000
Loss on sale of long-term investment 30,000
Officers’ salaries 225,000
Rent for office space 220,000
Sales salaries and commissions 140,000
One-half of the rented premises is occupied by the sales department. What amount should be reported as total selling
expense?
A. 360,000 C. 400,000
B. 370,000 D. 480,000
10. Wong Company prepared an income statement for the current year which included legal and audit fees of P1,700,000,
rent for office space P2,400,000, interest on inventory loan P2,1000,000, and loss on abandoned data processing
equipment P350,000. The office space is used equally by sales department and accounting department. What total
amount should be included in general and administrative expenses?
A. 2,900,000 C. 4,100,000
B. 3,250,000 D. 5,000,000
11. Abigail Company reported P2,450 net of tax debit reclassification adjustment of other comprehensive income in the year
the securities are sold. The tax rate is 30%. What is the gain or loss that is included in income from continuing operations
before income tax?
A. 3,500 loss C. 2,450 gain
B. 2,450 loss D. 3,500 gain
12. During the current year, Steel company retired bonds payable five years before their scheduled maturity resulting in a
P260,000 gain. A steel forming segment suffered P55,000 in loss due to storm surge damage during the year. Moreover,
a component of Steel’s operations was sold at a loss of P350,000. What amount of pretax gain or loss should be reported
separately as a component of income from continuing operations?
A. 350,000 loss C. 205,000 gain
B. 255,000 loss D. 260,000 gain
13. Alyssa Company had comprehensive insurance policy which allows its assets to be replaced at current value. The policy
has P250,000 deductible clause. One of the waterfront warehouses was destroyed in a hailstorm. Hailstorms occur
approximately every four years. The entity incurred P100,000 for dismantling the warehouse and plans to replace it. The
current carrying amount of the warehouse is P1,500,000 and the replacement cost is P5,500,000. What amount of gain
should be reported as a separate component of income from continuing operations?
A. 0 C. 3,900,000
B. 3,650,000 D. 5,150,000
14. Meril Company reported the following information for the current year:
Sales 575,000
Cost of sales 240,000
Administrative expenses 70,000
Loss on sale of equipment 10,000
Sales commissions 50,000
Interest revenue 25,000
Freight out 15,000
Loss on early retirement of long-term debt 20,000
Uncollectible accounts expense 15,000
The finished goods inventory was P400,000 on January 1 and P360,000 on December 31. The tax rate is 30%. What
amount should be reported as income from continuing operations?
A. 126,000 C. 140,000
B. 129,500 D. 147,000
15. Shanille Company reported income before tax of P125,000 for 2020. The auditor questioned the following amounts had
been included in income before tax:
3
Unrealized gain on available-for-sale investment 40,000
Equity in earnings of Cinn Company 20,000
Dividends received from Cinn Company 8,000
Adjustment to profit of prior years for arithmetical error in (35,000)
depreciation
Shanille Company owns 40% of Cinn’s ordinary shares. What amount should be reported as income before tax for 2020?
A. 85,000 C. 117,000
B. 112,000 D. 152,000
Discontinued operations
16. On December 1, 2020, Andrew Company committed to a plan to dispose of a business component’s assets. The disposal
meets the requirements to be classified as discontinued operations. On that date, the entity estimated that the loss from
the disposition of the assets would be P700,000 and the component’s operating loss was P200,000. Disregarding income
tax, what amount of loss should be reported for discontinued operation for 2020?
A. 0 C. 700,000
B. 200,000 D. 900,000
17. On December 31, 2020, the Board of Directors of Max Company committed to a plan to discontinue the operating of its
Underwear Division. The entity estimated that Underwear’s 2021 operating loss would be P500,000 and that the fair
value of its facilities was P300,000 less than carrying amount. Underwear’s 2020 operating loss was P1,400,000, and the
division was actually sold for P400,000 less than carrying amount in 2021. The effective tax rate is 30%. What amount
should be reported as loss from discontinued operations in 2020?
A. 0 C. 1,190,000
B. 980,000 D. 1,400,000 AICPA 0593
Comprehensive income
18. Palmyra Company has net income of P1,100,000, a positive P100,000 net cumulative effect of a change in accounting
policy, a P300,000 unrealized loss on available-for-sale securities, a positive P200,000 foreign current translation
adjustment, and a P600,000 increase in share capital. What is the comprehensive income?
A. 400,000 C. 1,100,000
B. 1,000,000 D. 1,700,000
19. Nicole Company provided the following net of tax figures for the current year:
Net remeasurement loss on defined benefit plan 300,000

Unrealized gain on available for sale securities 1,500,000
Reclassification adjustment for gain on sale of
available-for-sale securities included in net income 250,000
Share warrants outstanding 400,000
Net income 7,700,000
What is the comprehensive income for the current year?

A. 8,650,000 C. 8,950,000
B. 8,900,000 D. 9,050,000
20. Rachel Company reported the following for the current year:
Unrealized loss on futures contract designated as cash 500,000

flow hedge
Revaluation surplus during the year 350,000
Unrealized gain on financial asset at TVTOCI 150,000
Remeasurement gain on employee benefits 120,000
Gain on translation of financial statements of a 150,000
foreign corporation
Loss from change in fair value attributable to credit risk of a
financial liability designated at FVTPL 200,000
In preparing the statement of comprehensive income, what net amount should be reported in other comprehensive
income that may not be recycled to profit or loss?
A. 350,000 C. 470,000
B. 420,000 D. 620,000
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Statement of cash flows
21. Jacqueline Company 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 P120,000 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. In the statement of cash flows, what amount should be reported as net cash provided by
operating activities?
A. 3,400,000 C. 3,520,000
B. 3,470,000 D. 3,570,000
22. In 2020, a storm surge completely destroyed a building belonging to Holland Company. The building cost of P100,000
and had accumulated depreciation of P48,000 at the time of the loss. The entity received a cash settlement from the
insurance entity and reported a loss of P21,000. In the 2020 statement of cash flows, what is net change reported in the
investing activities?
A. 10,000 increase C. 31,000 increase
B. 21,000 decrease D. 52,000 decrease
23. Fara Company reported bonds payable of P47,000 on December 31, 2020, and P50,000 on December 31, 2021. During
2021, the entity issued P20,000 of bonds payable in exchange for equipment. There was no amortization of bond
premium or discount during the year. What amount should be reported in the 2021 statement of cash flows for
redemption of bonds payable?
A. 3,000 C. 20,000
B. 17,000 D. 23,000
24. King Company provided the following information for the current year:
Dividends paid 300,000
Proceeds from issuance of shares 250,000
Borrowing under a line of credit 200,000
Proceeds from issuance of convertible bonds 100,000
Proceeds from sale of building 150,000
What is the increase in cash flows provided by financing activities?

A. 50,000 C. 250,000
B. 150,000 D. 550,000
Questions 25 thru 29 are based on the following information:
Kristy Company used the direct method to prepare statement of cash flows:
2021 2020
Cash 35,000 32,000
Accounts receivable 33,000 30,000
Inventory 31,000 47,000
Property, plant and equipment 100,000 95,000
Unamortized bond discount 4,500 5,000
Cost of goods sold 250,000 380,000
Selling expenses 141,500 172,000
General and administrative expenses 137,000 151,300
Interest expense 4,300 2,600
Income tax expense 20,400 61,200
756,700 976,100
Allowable for doubtful accounts 1,300 1,100

Accumulated depreciation 16,500 15,000
Trade accounts payable 25,000 17,500
Income taxes payable 21,000 27,100
Deferred income taxes 5,300 4,600
8% callable bonds payable 45,000 20,000
Share capital 50,000 40,000
Share premium 9,100 7,500
Retained earnings 44,700 64,600
5
Sales 538,800 778,700
756,700 976,100
The entity purchased P5,000 in equipment during 2021. The entity allocated one-third of the depreciation expense to
selling expenses and remainder to general administrative expenses. There was no write-off of accounts receivable during
2021. What amounts should be reported in the statement of cash flows for the following:
25. Cash collected from customers?

A. 535,800 C. 541,600
B. 536,000 D. 541,800
26. Cash paid for goods to be sold?
A. 226,500 C. 257,500
B. 242,500 D. 258,500
27. Cash paid for selling expenses?
A. 140,000 C. 141,500
B. 141,000 D. 142,000
28. Cash paid for interest?
A. 1,700 C. 4,300
B. 3,800 D. 4,800
29. Cash paid for income taxes?
A. 15,000 C. 20,400
B. 19,700 D. 25,800

Vanessa Company provided the following data:
2021 2020
Cash 350,000 150,000
Accounts receivable, net 840,000 580,000
Merchandise Inventory 660,000 420,000
Prepaid expenses 50,000 100,000
Long-term investment 80,000 -
Property, plant and equipment 1,130,000 600,000
Accounts payable 530,000 440,000
Accrued expenses 140,000 130,000
Dividends payable 70,000 -
Note payable – long-term debt 500,000 -
Share capital 1,200,000 900,000
Retained earnings 560,000 330,000
Net credit sales 6,400,000 4,000,000
Cost of goods sold 5,000,000 3,200,000
Expenses 1,000,000 520,000
Net income 400,000 280,000
All accounts receivable and accounts payable relate to trade merchandise. Accounts payable are recorded net and always
paid to take all of the discounts allowed. The allowance for doubtful accounts at the end of 2021 was the same as at the
end of 2020. No receivables were charged against the allowance during 2021.
The proceeds from the note payable were used to finance a new store building. Share capital was sold to provide
additional working capital.
30. What is the net cash provided by operating activities for the current year?
A. 100,000 C. 200,000
B. 110,000 D. 400,000
31. What is the net cash used in investing activities for the current year?
A. 80,000 C. 610,000
B. 530,000 D. 660,000
32. What is the net cash provided by financing activities for the current year?
A. 140,000 C. 500,000
B. 300,000 D. 700,000
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Segment reporting
33. Correy Company and its divisions are engaged solely in manufacturing operations.
Segment Revenue Operating Profit Assets

A 10,000,000 1,750,000 20,000,000
B 8,000,000 1,400,000 17,500,000
C 6,000,000 1,200,000 12,500,000
D 3,000,000 550,000 7,500,000
E 4,250,000 675,000 7,000,000
F 1,500,000 225,000 3,000,000
How many reportable segments does Correy have?

A. Three C. Five
B. Four D. Six
34. Ina Company, a publicly-owned entity, assesses performance and makes operating decisions using for the reportable
segments total revenue of P7,680,000 and total profit and loss of P406,000. The total profit and loss included
intersegment profit of P61,000. In addition, the entity has P5,000 of common costs for the reportable segments that are
not allocated in reports reviewed by the chief operating decision-maker. For purposes of segment reporting, what
amount should be reported as segment profit of the reportable segments?
A. 345,000 C. 406,000
B. 350,000 D. 411,000
Interim reporting
35. On June 30, 2020, Line Company incurred a P100,000 net loss from disposal of a business segment. Also, on June 30,
2020, the entity paid P40,000 for property taxes assess for the 2020. What amount should be included in the
determination of net income or loss for the six-month interim period ended June 30, 2020?
A. 70,000 C. 120,000
B. 90,000 D. 140,000
36. Jessa Company reported P4,750,000 net income for the quarter ended September 30, 2020 which included the following
after tax items:
• A P3,000,000 expropriation gain, realized on April 30, 2018, was allocated equally to the second, third and
fourth quarters of 2020.
• An P800,000 cumulative-effect loss resulting from a change in inventory valuation method was recognized on
August 1, 2020.
The entity paid P2,400,000 on February 1, 2020, for 2020 calendar year property taxes. Of this amount, P600,000 was
allocated to the third quarter ended September 30, 2020. What amount should be reported as net income for the third
quarter?
A. 4,550,000 C. 5,550,000
B. 5,150,000 D. 5,750,000
Cash and cash equivalents

37. Julius Company had the following account balance on December 31, 2020:
Cash in bank 5,200,000

Cash on hand 350,000
Cash fund set aside for dividend payable in 2021 200,000
Cash fund set aside for land acquisition in 2021 1,500,000
The cash in bank included P250,000 compensating balance against short-term borrowing and is not legally restricted as
to withdrawal. The cash on hand included a check of P100,000 payable to the entity dated January 3, 2021.
What amount should be reported as cash under current assets on the December 31, 2020?
A. 5,400,000 C. 5,750,000
B. 5,650,000 D. 7,150,000
38. Annibelle Company provided the following account balances on December 31, 2020:
Cash in bank 2,250,000

Cash restricted for addition to plant expected to be
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disbursed I 2021 1,600,000
Cash in money market account 750,000
Treasury bill purchased November 1, 2020 maturing
January 31, 2021 3,500,000
Treasury bill purchased December 1, 2020 maturing
March 31, 2021 2,000,000
Cash in bank included P600,000 of compensating balance against short-erm borrowing arrangement. The compensating
balance is not legally restricted as to withdrawal. What total amount should be reported as cash and cash equivalents
on December 31, 2020?
A. 6,025,000 C. 8,225,000
B. 6,625,000 D. 8,625,000
39. Karen Company provided the following information on December 31, 2020:
Petty cash fund 20,000
Security Bank current account 3,000,000
BDO Current account No. 1 400,000
BDO Current account No. 2 (50,000)
BSP treasury bill – 60 days 4,000,000
BPI time deposit – 30 days 1,000,000
The cash on hand included a customer postdated check of P100,000 and postal money order of P40,000. A check for
P300,000 was drawn against Security Bank account dated January 15, 2021, delivered to the payee and recorded
December 31, 2020. The BPI time deposit is set aside for acquisition of equipment. What total amount of cash & cash
equivalents should be reported on December 31, 2020?
A. 7,470,000 C. 8,070,000
B. 7,770,000 D. 9,070,000
40. Joan Company prepared the following bank reconciliation dated June 30 of the current year.
Balance per bank 9,800,000

Deposit in transit 400,000
Outstanding checks (1,400,000)
Balance per book 8,800,000
There were total deposits of P6,500,000 and charges for disbursements of P9,000,000 for July per bank statement. All
reconciliation items on June 30 cleared the bank on July 31. Deposits in transit totaled P900,000 and checks outstanding
amounted to P1,000,000 on July 31. What is the amount of cash in bank to be reported on July 31?
A. 6,200,000 C. 7,200,000
B. 7,000,000 D. 8,600,000
41. Pope Company had the following bank reconciliation at March 31, 2020:
Balance per bank statement 3/31/2020 46,500

Add: Deposit in transit 10,300
Total 56,800
Less: Outstanding checks 12,600
Balance per book, 3/31/2020 44,200
Date per bank for the month of April 2020 follow:

Deposits 58,400
Disbursements 49,700
All reconciling items on March 31, 2020 cleared the bank in April. Outstanding checks on April 30, 2020 totaled P7,000.
There were no deposits in transit on April 30, 2020. What is the cash balance per book at April 30, 2020?
A. 48,200 C. 55,200
B. 52,900 D. 58,500
42. Janine Company prepared the following bank reconciliation on June 30:
Balance per bank 9,800,000

Deposit in transit 400,000
Outstanding checks (1,400,000)
8
Balance per book 8,800,000
There were total deposits of P6,500,000 and charges for disbursement of P9,000,000 for July per bank statement. All
reconciliation items on June 30 cleared the bank on July 31. Checks outstanding amounted to P1,000,000 on July 31.
What is the amount of cash disbursements per book in July?
A. 7,600,000 C. 8,600,000
B. 8,400,000 D. 9,400,000
43. Terra Company used the imprest system in accounting for petty cash fund. The fund had an imprest balance of P20,000
at year-end which consisted of currency and coins P1,000, employees’ advances P3,000, currency in envelope marked
“collections for Christmas Party” P2,000, check drawn by Terra Company payable to petty cashier representing salary
P14,000. What is included in the entry to adjust the petty cash fund at year-end?
A. Debit cash short/over P2,000 C. Credit cash short/over P2,000
B. Debit petty cash fund P15,000 D. Credit advances to employees P3,000
Receivables
44. Arwin Company revealed the following information for 2020:
Accounts receivable on January 650,000

Credit sales 2,700,000
Sales returns 75,000
Collections from customers 2,150,000
Accounts written off 40,000
Estimated future sales returns at year-end 50,000
Estimated uncollectible accounts receivable at year-end
per aging 110,000
On December 31, 2020, what is the balance of accounts receivable before allowance for doubtful accounts and allowance
for sales returns?
A. 925,000 C. 1,125,000
B. 1,085,000 D. 1,200,000
45. Inge Company determined the net value of accounts receivable on December 31, 2020 on an aging of accounts receivable
was P325,000.
Allowance for uncollectible accounts – 1/1/2020 30,000

Uncollectible accounts written-off during 2020 18,000
Uncollectible accounts recovered during 2020 2,000
Accounts receivables on 12/31/2020 350,000
What is the uncollectible accounts expense for the current year?

A. 5,000 C. 15,000
B. 11,000 D. 21,000
46. Brat Company adopted the aging method of estimated doubtful accounts on December 31, 2020. The following data are
available for the current year:
Allowance for doubtful accounts, January 1 2,500,000

Provision for doubtful accounts recorded during the year
Based on credit sales 2,000,000
Recoveries of accounts written off 500,000
Accounts written off 2,050,000
Estimated uncollectible accounts per aging on December 31 2,200,000
Estimated future sales return 1,500,000
What is the year-end adjustment to the allowance for doubtful accounts?

A. 250,000 debit C. 750,000 debit
B. 250,000 credit D. 750,000 credit
47. At year-end, Janna Company reported allowance for doubtful accounts with debit balance of P50,000 and net sales of
P9,000,000 before adjustment. The entity estimated uncollectible accounts receivable at 5% of net sales. What is the
allowance for doubtful accounts at year-end?
A. 400,000 C. 500,000
B. 450,000 D. 550,000
9
48. On January 1, 2020, Jamin Company had a credit balance of P260,000 in the allowance for uncollectible accounts. Based
on past experience, 2% of credit sales would be uncollectible. During the year, the entity wrote off P325,000 of
uncollectible accounts. Credit sales for the year were P9,000,000. On December 31, 2020, what amount should be
reported as allowance for uncollectible accounts?
A. 115,000 C. 245,000
B. 180,000 D. 440,000
49. Klaire Company provided the following information about accounts receivable on December 31, 2020:
0-60 days outstanding 6,000,000 5% uncollectible

61-120 days outstanding 4,500,000 10% uncollectible
Over 120 days outstanding 5,000,000 1,250,000 uncollectible
During 2020, the entity wrote off P700,000 in accounts receivable and recovered P300,000 that had been written off in
prior years. On January 1, 2020, the allowance for uncollectible accounts was P500,000. Under the aging method, what
amount of uncollectible accounts expense should be reported for 2020?
A. 1,900,000 C. 2,100,000
B. 2,000,000 D. 2,200,000
50. Delta Company sells to wholesalers on terms of 2/15, net 30. The entity has no cash sales but 50% of the customers take
advantage of the discount. The entity uses the gross method of recording sales and accounts receivable. An analysis on
December 31, 2020 revealed the following:
Age Amount Collectible

0-15 days 100,000 100%
16-30 days 60,000 95%
31-60 days 5,000 90%
Over 60 days 2,500 500
On December 31, 2020, what amount should be reported as allowance for discounts?
A. 1,000 C. 1,675
B. 1,620 D. 2,000
51. Veronica Company reported current receivables on December 31, 2020 which consisted of the following:
Trade accounts receivable 930,000

Allowance for uncollectible accounts 20,000
Claim against shipper for goods lost in transit
in November 2020 30,000
Selling price of unsold goods sent by Veronica
on consignment at 130% of cost and not included
in the ending inventory 260,000
Security deposit on lease of warehouse used for
storing inventories 300,000
What is the correct total current net receivable on December 31, 2020?
A. 940,000 C. 1,240,000
B. 1,200,000 D. 1,500,000
52. Meredith Company provided the following information:

January 1, 2020 December 31, 2020
Allowance for doubtful accounts 120,000
Sales on account 16,000,000
Cash collections from customers 14,000,000
The cash collections included recovery of P20,000 from a customer whose account had been written off as worthless
in 2019. During 2020, it was necessary to recognize doubtful accounts expense of P200,000 and write off worthless
accounts of P60,000. On December 1, 2020, a customer settled an account by issuing a 12% six-month note for
P800,000. What is the net realizable value of accounts receivable on December 31, 2020?
A. 3,260,000 C. 3,340,000
B. 3,280,000 D. 3,560,000
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53. Bum Company had no cash sales but 50% of customers take advantage of the discount based on past experience. The
terms were 5/15, n/30. The entity used the gross method of recording sales. An analysis of the collectability of accounts
receivable on December 31, 2020 revealed the following:
0-15 days 5,000,000 100%

16-30 days 2,000,000 90%
Over 30 days 1,000,000 700,000
What amount should be reported as net realizable value of accounts receivable?

A. 6,957,000 C. 7,500,000
B. 7,375,000 D. 7,875,000
54. On December 30, 2020, Change Company sold a machine in exchange for a noninterest bearing note requiring ten annual
payments of P100,000. The first payment was made on December 30, 2020. The market interest rate for similar note at
date of issuance was 8%.
Period 9 10
Present value of 1 at 8% 0.50 0.46
Present value of ordinary annuity of 1 at 8% 6.25 6.71
On December 31, 2020, what amount should be reported as note receivable?

A. 450,000 C. 625,000
B. 460,000 D. 671,000
55. Diane Company purchased a P2,000,000, 8% five-year note that required five equal annual year-end payments of
P500,900. The note was discounted to yield 9%. At the date of purchase, the entity recorded the note at the present
value of P1,948,500. The entity did not elect the fair value option. What is the total interest revenue earned over the life
of this note?
A. 504,500 C. 800,000
B. 556,000 D. 900,000
56. On December 31, 2020, Czarina Company gave Home Company a P200,000, 11% loan. The entity paid proceeds of
P194,000 after deduction of a P6,000 non-refundable loan origination fee. Principal and interest are due in sixty monthly
installments of P4,310, beginning January 1, 2021. The repayments yield an effective interest rate of 11% at a present
value of P200,000 and 12.4% at a present value of P194,000. What amount of income from this loan should Money
report in 2020?
A. 0 C. 2,005
B. 1,833 D. 7,833
57. On December 31, 2020, Marianne Company received two P2,000,000 notes receivable from customers. On both notes,
interest is calculated on the outstanding principal balance at the annual rate of 3% and payable at maturity. The first
note, made under customary trade terms, is due in nine months and the second note is due in five years. The market
interest rate for similar notes on December 31, 2020 was 8%. The PV of 1 at 8% due in nine months is 0.944, and the PV
of 1 at 8% due in 5 years is 0.68. On December 31, 2020, what total carrying amount should be reported for the two
notes receivable?
A. 3,248,000 C. 3,494,400
B. 3,360,000 D. 3,564,000
58. Kathleen Bank granted a 10-year loan to a borrower in the amount of P1,500,000 with stated interest rate of 6%.
Payments are due monthly and are computed to be P16,650. The bank incurred P40,000 of direct loan origination cost
and P20,000 of indirect loan origination cost. In addition, the bank charged the borrower a 4-point nonrefundable loan
origination fee. What is the carrying amount of the loan receivable to be reported initially by the bank?
A. 1,440,000 C. 1,500,000
B. 1,480,000 D. 1,520,000
59. On December 31, 2020, Gabriel Company sold a machine in exchange for a non-interest-bearing note requiring ten
annual payments of P500,000. The buyer made the first payment on December 31, 2020. The market interest rate for
similar notes at date of issuance was 8%. The PV of 1 at 8% is 0.50 for 9 periods and 0.46 for 10 periods. The PV of an
ordinary annuity of 1 at 8% is 6.25 for 9 periods and 6.71 for 10 periods. On December 31, 2020, what is the carrying
amount of the note receivable?
A. 2,250,000 C. 3,125,000
B. 2,300,000 D. 3,355,000
11
60. On December 31, 2020, Macho Bank has a 5-year loan receivable with a face value of P6,000,000 dated January 1, 2018
due on December 31, 2023. Interest is payable annually every December 31 at 9%. The borrower made the required
interest payment on December 31, 2019 but informed the bank that interest accrued for 2020 will be paid together with
the principal at maturity. There is a high probability that remaining interest payments will not be paid. The prevailing
market interest rate is 10%. What is the loan impairment loss for 2020? (Round PV factors to 2 decimals)
A. 1,046,400 C. 1,504,200
B. 1,111,800 D. 1,635,000
61. Scarbrough Company factored P600,000 of accounts receivable on October 1, 2020. Control was surrendered by
Scarbrough. The factor accepted the accounts receivable subject to recourse for nonpayment. The factor assessed a fee
of 3% and retains 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 fifty-four days. The fair value of the recourse obligation is P9,000.
What amount of cash was initially received?
A. 529,685 C. 547,685
B. 538,685 D. 556,685
62. Jesus Company factored P3,000,000 of accounts receivable without recourse. The factor required an assessment fee of
10% of the accounts factored and a holdback of 15% of the accounts factored for possible sales returns and allowances.
The accounts factored had related allowance for doubtful accounts of P200,000. What amount of loss on factoring should
be recognized?
A. 100,000 C. 650,000
B. 300,000 D. 750,000
Inventories
63. On December 31, 2020, Paolo Company purchased goods costing P500,000. The terms were F.O.B. destination. Some of
the costs incurred in connection with the sale and delivery of the goods were packaging for shipment P10,000, shipping
P15,000, and special handling charges P25,000. These goods were received on December 31, 2020. On December 31,
2020, what total cost for these goods should be included in inventory?
A. 500,000 C. 535,000
B. 520,000 D. 545,000
64. On December 15, 2020 Flanagan Company purchased goods costing P100,000. The term were FOB shipping point. Costs
incurred by the entity in connection with the purchase and delivery of the goods were as follows:
Normal freight charge 3,000
Handling cost 2,000
Insurance on shipment 500
Abnormal freight charge for express shipping 1,200
The goods were received on December 17, 2020. What is the amount that should be charged to inventory and expense
respectively?
A. 3,000 and 3,700 C. 5,500 and 1,200
B. 5,000 and 1,700 D. 6,700 and 0
65. Opal Company reported the following items that were included in inventory at year-end:
Merchandise out on consignment, at sales price,
including 40% markup on selling price 40,000
Goods purchased in transit shipped FOB shipping point 36,000
Goods held on consignment by Opal Company 27,000
By what amount should the inventory be reduced?

A. 43,000 C. 67,000
B. 51,000 D. 103,000
66. Herc Company reported inventory on December 31, 2020 at P1,500,000 based on a physical count period at cost and
before any necessary adjustment for the following:
• Merchandise costing P90,000, shipped FOB shipping point from a vendor on December 30, 2020 was received
and recorded on January 5, 2021.
• Goods in the shipping area were excluded from inventory although shipment was not made until January 4,
2021. The goods billed to the customer FOB shipping point on December 30, 2021, had a cost of P120,000.
What amount should be reported as inventory on December 31, 2020?

A. 1,500,000 C. 1,620,000
B. 1,590,000 D. 1,710,000
12
67. A physical count on December 31, 2020 revealed that Tones Company had inventory with a cost of P4,400,000. The
following items were excluded from this amount:
• Merchandise of P600,000 is held on consignment by Tones.

• Goods costing P400,000 was shipped by Tones “Ex-ship” to a customer on December 31, 2020. The customer
received the goods on January 3, 2021.
• Merchandise costing P500,000 was shipped by Tones “Free alongside” to a customer on December 29, 2020.
The customer received the goods on January 6, 2021.
• Goods costing P800,000 shipped by a vendor FOB destination on December 31, 2020 was received by Tones
on January 7, 2021.
• Goods costing P700,000 was shipped by a supplier “CIF” on December 30, 2020 and received by Tones on
January 10, 2021.
What is the correct amount of inventory on December 31, 2020?

A. 4,900,000 C. 5,500,000
B. 5,400,000 D. 6,000,000
68. During the current year, Isabel Company paid P100,000 cash and traded inventory which had a carrying amount of
P2,000,000 and a fair value of P2,100,000 for other inventory in the sale line of business with a fair value of P2,200,000.
What amount should be recorded as cost of the inventory received in exchange?
A. 2,000,000 C. 2,200,000
B. 2,100,000 D. 2,300,000
69. During the current year, Bred Company exchanged inventory with Oreo Company. The configuration of cash flows before
and after the exchange does not significantly differ. Bred’s inventory had a fair value of P2,800,000 and Bred
appropriately recorded the inventory received in exchange at P2,600,000. Oreo’s inventory had a fair value of P2,500,000
and Oreo appropriately recorded the inventory received in exchange at P2,300,000. Oreo paid P300,000 to Bred to make
up for the difference in fair value. What was the carrying amount of Bred’s old inventory?
A. 2,000,000 C. 2,600,000
B. 2,300,000 D. 2,900,000
70. Gecelle Company reported during the current year beginning inventory P500,000, net purchases P2,500,000 and net
sales P3,200,000. A physical inventory at year-end resulted in an inventory of P575,000. The gross profit on sales has
remained constant at 25%. The entity suspected that some inventory may have been taken by a new employee. What is
the estimated cost of missing inventory at year-end?
A. 25,000 C. 175,000
B. 100,000 D. 225,000
71. Danika Company provided the following information for the current year:
Inventory, January 1 1,500,000

Purchases 4,600,000
Purchase returns 100,000
Freight-in 200,000
Sales 6,800,000
Sales discounts 100,000
Sales returns 300,000
At year-end, a physical inventory revealed that the ending inventory was only P850,000. The gross profit on sales was
30%. The entity suspected that some inventory may have been pilfered.
What is the estimated cost of missing inventory at year-end?
A. 600,000 C. 1,450,000
B. 670,000 D. 1,520,000
72. Mariel Company used the retail inventory method to estimate inventory. Data relating to the inventory computation at
the year-end are as follows:
Cost Retail
Inventory, January 1 700,000 1,000,000
Purchases 4,100,00 6,300,000
Net markups 700,000
Net markdowns 500,000
Sales 6,600,000
Estimated normal shoplifting losses 200,000
13
Under the conventional retail method, what is the estimated inventory at year-end?
A. 420,000 C. 540,000
B. 448,000 D. 576,000
73. Ferdinand Company used the retail inventory method to value inventory. The following information is available for the
current year:
Cost Retail
Beginning inventory 1,500,000 2,500,000
Purchases 7,250,000 10,000,000
Freight-in 168,250
Net markup 425,000
Net markdown 1,035,000
Employee discounts 50,000
Sales 10,250,000
Sales discount 750,000
What is the estimated cost of ending inventory using the conventional approach?
A. 1,097,100 C. 1,590,000
B. 1,166,100 D. 1614,600
74. Divine Company used the conservative retail method and showed the following information at year-end:
Cost Retail
Inventory, January 1 560,000 1,400,000
Sales 10,000,000
Purchases 4,960,000 10,320,000
Freight-in 150,000
Markup 1,000,000
Markup cancellation 120,000
Markdown 500,000
Markdown cancellation 100,000
The estimated normal shrinkage is 5% of sales. What is the estimated cost of inventory at year-end?
A. 765,000 C. 990,000
B. 945,000 D. 1,170,000
75. Aloha Company determined the following information for the inventory at year-end:
Historical cost 100,000
Current replacement cost 70,000
Net realizable value 80,000
Net realizable value less a normal profit margin 85,000
Fair value 95,000
What amount should be reported as inventory at year-end?

A. 70,000 C. 90,000
B. 85,000 D. 95,000
76. John Company measured inventory at LCNRV. The entity provided the following information regarding inventory:
Historical cost 5,000,000
Estimated selling price 4,500,000
Expected selling price 4,700,000
Cost to complete and sell 250,000
Replacement cost 4,000,000
What amount should be reported as inventory at LCNRV?

A. 4,250,000 C. 4,450,000
B. 4,000,000 D. 5,000,000
77. On December 31, 2020, Erica Company experienced a decline in the value of inventory resulting in a write-down from
P2,400,000 to P2,000,000. The entity used the loss method in 2020 to record the necessary adjustment. In 2021, market
conditions have improved dramatically. On December 31, 2021, the inventory had a cost of P3,000,000 and NRV of
P3,500,000. Cost of goods sold before LCNRV measurement for 2021 was P5,600,000. What amount of cost of goods
sold should be reported for 2021?
A. 5,100,000 C. 5,600,000
14
B. 5,200,000 D. 6,000,000
78. On January 1, 2020, Danielle Company signed a three-year, noncancelable purchase contract, which allows the entity to
purchase up to 50,000 units of a computer part annually at P100 per unit and guarantees a minimum annual purchase
of 10,000 units. During 2020, the part unexpectedly became obsolete. The entity had 25,000 units of this inventory on
December 31, 2020 and believed these parts can be sold as scrap for P20 per unit.
What amount of loss from the purchase commitment should be reported in 2020?
A. 1,600,000 C. 2,400,000
B. 2,000,000 D. 3,600,000
79. Drew Company used the average cost inventory method for inventory reporting purposes and LIFO for financial
statement and income tax reporting. On December 31, 2020, the inventory was P375,000 using average cost and
P320,000 using LIFO. The unadjusted credit balance in the LIFO Reserve account on December 31, 2020 was P35,000.
What adjusting entry should be recorded to adjust from average cost to LIFO on December 31, 2020?
A. Cost of goods sold 55,000
Inventory 55,000
B. Cost of goods sold 55,000
LIFO reserve 55,000
C. Cost of goods sold 20,000
Inventory 20,000
D. Cost of goods sold 20,000
LIFO reserve 20,000
Biological assets
80. Faith Company produces milk for sale to local and national ice cream producers. The entity began operating on January
1, 2020 by purchasing 650 milk cows for P8,000,000. The entity had the following information available at year-end
relating to the cows:
Acquisition cost, January 1, 2020 8,000,000

Change in fair value due to growth and price changes 2,500,000
Decrease in fair value due to harvest 250,000
Milk harvested during 2020 but not yet sold 400,000
What amount of gain on change in fair value should be recognized for biological asset in 2020?
A. 2,250,000 C. 2,650,000
B. 2,500,000 D. 2,900,000
81. Mars Company is engaged in dairy livestock and provided the following for current year:
Carrying amount of biological assets on January 1 5,000,000

Increase due to purchase 2,000,000
Gain attributable to price change of biological asset 1,000,000
Gain attribute to physical change of biological asset 600,000
Milk produced during the year but unsold at year-end 100,000
What is the carrying amount of biological asset at year-end?

A. 8,000,000 C. 8,600,000
B. 8,100,000 D. 8,700,000
Investment in debt & equity securities
82. On March 5, 2020, Ashe Company adopted a plan to accumulate P1,000,000 by September 1, 2024. The entity plans to
make four equal annual deposits to a fund that will earn interest at 10% compounded annually. The entity made the first
deposit on September 1, 2020.
Future value of 1 at 10% for 4 periods 1.46

Future amount of ordinary annuity of 1 at 10% for four periods 4.64
Future amount of annuity in advance of 1 at 10% for four periods 5.11
What is the annual deposit to the fund (rounded)?

A. 146,000 C. 215,500
B. 195,700 D. 250,000
15
83. On July 1, 2020, Blass Company exchanged a truck for 25,000 shares of Ace Company. On that date, the truck’s carrying
amount was P2,500,000, and the fair value was P3,000,000. Also, the book value of Ace’s share was P60. On December
31, 2020, Ace had 250,000 shares outstanding and the book value per share was P50. What amount should Blass report
on December 31, 2020 as investment in Ace?
A. 1,250,000 C. 2,500,000
B. 1,500,000 D. 3,000,000
84. Shelton Company reported the following portfolio of available-for-sale securities:
Aggregate cost, 12/31/2020 150,000

Unrealized gains, 12/31/2020 14,000
Unrealized losses, 12/31/2019 26,000
Net realized gains during 2020 30,000
The entity elects the fair value option for reporting all available-for-sale securities. What total amount should be reported
in the income statement for 2020?
A. 4,000 gain C. 30,000 gain
B. 18,000 gain D. 44,000 gain
85. On December 31, 2020, Grace Company appropriately reported P100,000 unrealized loss. There was no change during
2021 in the composition of the portfolio of equity securities designated as FVTOCI. The entity provided the following
information:
Security Cost Fair value at 12/31/19
X 1,250,000 1,600,000
Y 1,000,000 900,000
X 1,750,000 1,000,000
What unrealized loss should be reported in the statement of comprehensive income for the year ended December 31,
2021?
A. 0 C. 500,000
B. 400,000 D. 600,000
86. Trisha company buys ten shares of securities at P1,000 each on January 15, 2020. The securities are classified as available-
for-sale. The fair value of the securities increases to P1,250 per share on December 31, 2020. The entity does not elect
the fair value option for reporting available-for-sale securities. Assume no dividends are paid and that the entity has a
30% tax rate. What is the amount of the holding gain that is classified in other comprehensive income?
A. 0 C. 2,500
B. 1,750 D. 7,500
87. During the current year, Sunshine Company reported in the statement of comprehensive income P5,000 in interest
revenue, P15,000 equity in associate’s earnings, and P25,000 gain on sale of available-for-sale securities. Assuming the
same of the securities increased the current portion of income tax expense by P10,000, what is the amount of
reclassification adjustment of other comprehensive income?
A. 2,500 C. 15,000
B. 5,000 D. 35,000
88. John Company buys ten shares of securities at P2,000 each on December 31, 2020. The securities are classified as
available-for sale. The entity does not elect the fair value option for reporting available-for-sale securities. The fair value
of the securities increases to P2,500 on December 31, 2021, and to P2,750 on December 31, 2022. On December 31,
2022, the entity sells the securities. Assume no dividends are paid and that the tax rate is 30%. What is the amount of
the reclassification adjustment for other comprehensive income on December 31, 2022?
A. (7,500) C. 5,250
B. (5,250) D. 7,500
89. Alton Company began operations on January 1, 2020. The following information pertains to the portfolio of marketable
equity securities on December 31, 2020:
Trading Available-for-sale
Aggregate cost 360,000 550,000
Aggregate fair value 320,000 450,000
Aggregate lower of cost or market value
applied to each security in the portfolio 304,000 420,000
16
The entity elects the fair value option for all financial instruments. If the fair value declines are judged to be temporary,
what amounts should be reported as a loss on these securities in the 2020 income statement?
A B C D
Trading securities 0 40,000 40,000 56,000
Available-for-sale securities 100,000 0 100,000 130,000
90. On January 1, 2020, Gilberto Company purchased 9% bonds with a face amount of P4,000,000 for P3,756,000 to yield
10%. The bonds are dated January 1, 2020, mature on December 31, 2029 and pay interest annually on December 31.
The interest method of amortizing bond discount is used. What amount should be reported as interest revenue form the
bond investment for 2021?
A. 360,000 C. 377,160
B. 375,600 D. 400,000
91. On July 1, 2020, East Company purchased as long-term investment P500,000 face amount, 8% bonds for P461,500 to
yield 10% per year. The bonds pay interest semi-annually on January 1 and July 1. The entity does not elect the fair value
option for reporting these securities. On December 31, 2020, what amount should be reported as interest receivable?
A. 18,460 C. 23,075
B. 20,000 D. 25,000
92. On January 1, 2020, Rainier Company purchased 12% bonds with face value of P5,000,000 for P5,380,000. The bonds
provide an effective yield of 10%. The bonds are dated January 1, 2020, mature on January 1, 2025 and pay interest
annually on December 31 of each year. The bonds are quoted at 120 on December 31, 2020. The entity elected the fair
value option for the bond investment. What total income should be reported for 2020?
A. 600,000 C. 1,138,000
B. 1,120,000 D. 1,220,000
93. On September 1, Star Company received P500,000 cash dividend from Sun Company in which Star Company owned a
30% interest. On October 1, Star Company received P100,000 liquidating dividends from Moon Company. Sar Company
owned a 5% interest in Moon Company. Star Company owned 10% interest in Sky Company which declared a P2,000,000
cash dividend on December 31. What amount of dividend revenue should be reported for the current year?
A. 200,000 C. 700,000
B. 600,000 D. 800,000
94. Sage Company bought 40% of an investee on January 1, 2020 for P400,000. The carrying amount of the investee’s net
assets at the purchase date totaled P900,000. Fair value and carrying amounts were the same for all items except for
plant and inventory, for which fair values exceeded their carrying amounts by P90,000 and P10,000 respectively. The
plant has an eighteen-year life. All inventory was sold during 2020. During 2020, the investee reported net income of
P120,000 and paid a P20,000 cash dividend. What amount should be reported as income from the investment in
associate in 2020?
A. 32,000 C. 42,000
B. 36,000 D. 48,000
95. On July 1, 2020, Diamond Company paid P1,000,000 for 100,000 outstanding shares (40%) of Ashley Company. At that
date, the net assets of Ashley totaled P2,500,000 and the fair values of all Ashley’s identifiable assets and liabilities were
equal to their carrying amount. Ashley reported net income of P500,000 for 2020, of which P300,000 was for the six
months ended December 31, 2020. Ashley paid cash dividends of P250,000 on September 30, 2020. Diamond does not
effect the fair value option for reporting the investment in Ashley. What amount of income should Diamond report from
the investment in Ashley?
A. 80,000 C. 120,000
B. 100,000 D. 200,000
96. Moss Company owns 20% of Dubro Company’s preference shares and 80% of the ordinary shares. Dubro’s share capital
outstanding on December 31, 2020 is as follows:
10% cumulative preference share capital 100,000
Ordinary share capital 700,000
Dubro reported net income of P60,000 for 2020. Moss does not elect the fair value option to report the investment in
Dubro. What amount should be reported as equity in earnings of Dubro for 2020?
A. 42,000 C. 48,400
B. 48,000 D. 50,000
97. Rock Company purchased 30% of Dale Company’s ordinary shares on January 1, 2020. The purchase resulted in no
goodwill or excess fair value
17
• Dale sold goods costing P500,000 for P750,000 to Rock in 2020. On December 31, 2020, the goods remained
unsold by Rock. In 2021, Rock sold such goods to the regular customers.
• On January 1, 2020, Dale also sold machinery with carrying amount of P3,000,000 to Rock for P4,200,000. The
machinery’s remaining life was 6 years.
• Dale reported net income of P3,500,000 and P2,500,000 in 2020 and 2021, respectively.
What mount of equity in earnings of Dale should Rock report for 2021?
A. 675,000 C. 825,000
B. 750,000 D. 885,000
98. On January 1, 2020, Gerald Company purchased 10% of Dana Company’s outstanding ordinary shares for P4,000,000.
Gerald is the largest single shareholder in Dana and Gerald’s officers are a majority of Dana’s board of directors. The
investee reported net income of P5,000,000 for 2020 and paid dividends of P1,500,000. On December 31, 2020, what
amount should be reported as investment in Dana Company?
A. 3,850,000 C. 4,350,000
B. 4,000,000 D. 4,500,000
99. On January 1, 2020, Kean Company purchased a 30% interest for P250,000. On this date, the investee’s shareholders
equity was P500,000. The carrying amounts of the investee’s identifiable net assets approximated fair value, except for
land whose fair value exceeded carrying amount by P200,000. The investee reported net income of P100,000 for 2020,
and paid no dividends. On December 31, 2020, what amount should be reported as investment in associate?
A. 210,000 C. 270,000
B. 220,000 D. 280,000
100. On January 1, 2020, Remy Company acquired 200,000 ordinary shares of Global Company for P9,000,000. At the time
of purchase, Global Company had outstanding 800,000 shares with a carrying amount of P36,000,000. Global Company
reported net income of P1,800,000 for 2020. Remy Company received from Global Company a dividend of P150,000
during the year. The market value of Global Company share had temporarily declined to P40. Remy Company elected
to measure the investment at fair value through other comprehensive income. What is the carrying amount of the
investment on December 31, 2020?
A. 8,0000,000 C. 9,300,000
B. 9,000,000 D. 9,450,000
101. On January 1, 2020, Buff Company purchased 25,000 shares or 10% interest of Clean Company for P2,000,000. Buff
used the cost method to account for this investment. Clean reported net income of P4,000,00 and paid no dividends
on 2020. On January 1, 2021, Buff paid P5,000,000 for 50,000 additional shares of Clean Company. The fair value of the
existing 10% interest was P1,700,000 on January 1, 2021. The fair values of the identifiable net assets of Clean Company
equal the carrying amount of P20,000,000 on such date except for land whose fair value is greater than carrying amount
of P4,000,000. The investee reported net income of P6,000,000 for 2021 and paid dividends of P10 per share. What is
the carrying amount of the investment in associate on December 31, 2021?
A. 6,700,000 C. 8,250,000
B. 7,750,000 D. 8550,000
102. On January 1, 2020, Jenica Company acquired 10% of the outstanding ordinary shares of an investee for P4,000,000.
On January 1, 2021, the entity acquired an additional 20% of the investee’s outstanding ordinary shares for
P10,000,000. The fair value of the investee’s net assets equaled carrying amount on January 1, 2021. The fair value of
the 10% interest on January 1, 2021 was P6,000,000. The investee reported the following:
2020 2021
Dividend paid 2,000,000 3,000,000
Net income 6,000,000 7,000,000
What is the carrying amount of the investment in associate on December 31, 2021?
A. 15,200,000 C. 17,200,000
B. 16,000,000 D. 17,600,000
Derivatives & hedging

103. Smythe Company invested P20,000 in a call option for 1,000 shares of Gin Company P50 par, when the market price
was P100 per share. The option expired in three months and had an exercise price of P90 per share. What was the
intrinsic value of the call option at the time of initial investment?
A. 5,000 C. 20,000
B. 10,000 D. 90,000
104. On January 1, 2020, Christine Company borrowed P5,000,000 from a bank at a variable rate of interest for 4 years.
Interest is payable annually to the bank every December 31 and the principal is due on December 31, 2023. Under the
18
agreement, the market rate of interest every January 1 resets the variable rate for that period and the amount of
interest to be paid on December 31. In connection with the loan, the entity entered into a “receive variable, pay fixed”
interest rate swap agreement with another bank speculator. The agreement was treated as a cash flow hedge and the
market interest rates are January 1, 2020 – 10%, January 1, 2021 – 14%, January 1, 2022 – 12%, January 1, 2023 – 11%
Round off PV factor to two decimals.
What amount should be reported as derivative asset on December 31, 2021?
A. 169,000 C. 240,000
B. 200,000 D. 464,000
105. Castlehill Company regularly hedges its purchase requirements and the sale of its finished products in the futures
market. On November 1, 2020, the entity entered into the following three contracts designated as cash flow hedge:
Types of contract Quantity Future strike Market price
price 12/31/18
Purchase cotton 100,000 85 75
Purchase wool 150,000 90 110
Sell shirts 90,000 350 400
All three contracts are to be settled on January 1, 2021. What is the derivative asset or liability on December 31, 2020?
A. 2,500,000 asset C. 6,500,000 asset
B. 2,500,000 liability D. 6,500,000 liability
106. On January 1, 2020, Tara Company received a 5-year variable interest rate loan of P10,000,000 with interest payment
at the end of each year and the principal to be paid on December 31, 2024. The interest rate for 2020 is 8% and the
rate in each succeeding year is equal to market interest rate on January 1 of each year. Tara Company entered into a
“receive variable, pay fixed” interest rate swap agreement. The swap payments are made at the end of the year. This
interest rate swap agreement is designated as a cash flow hedge. On January 1, 2021, the market rate of interest is
6%. On December 31, 2020, what amount should be reported as derivative asset or liability?
A. 694,000 asset C. 800,000 asset
B. 694,000 liability D. 800,000 liability

Danica Company sold loans with P2,200 fair value and carrying amount of P2,000. The entity obtained an option to purchase similar
loans and assumed a recourse obligation to repurchase loans. The fair values are listed.
Cash proceeds 2,100

Interest rate swap 140
Call option 80
Recourse obligation (120)
107. What is the gain (loss) on the sale?

A. (100) C. 200
B. 120 D. 320
108. The journal entry to record the transfer on the books of Danica Company includes
A. a debit to loans C. a credit to cash
B. a debit to call option D. a credit to interest rate swap
109. Assume that Danica Company agreed to service the loans without explicitly stating the compensation. The fair value
of the service is P50. What are the net proceeds and the gain (loss) on the sale, respectively?
A. 2,150 and 150 C. 2,200 and 200
B. 2,200 and (250) D. 2,250 and 250
Property, plant & equipment
110. During the year, King Company made the following expenditures relating to plant building:
Continuing and frequent repairs 40,000

Repainted the plant building 10,000
Major improvements to the electrical wiring system 32,000
Partial replacement of roof tiles 14,000
How much should be charged to repair and maintenance expense?

A. 54,000 C. 82,000
B. 64,000 D. 96,000
19
111. On January 1, 2020, Harbor Company purchased land and building at a single cost of P20,000,000. On this date, it was
determined that the land and building had a fair value of P18,000,000 and P7,000,000 respectively. The entity also
incurred legal fees for purchase contract and recording ownership P200,000, and title guarantee insurance P100,000.
The entity immediately demolished the building to make way for construction of a new building to be used as owner-
occupied. The total contract price and other directly attributable cost to the building amounted to P15,000,000. The
entity incurred demolition cost of P350,000. Under the PIC Interpretation, what is the initial cost of the land?
A. 14,700,000 C. 15,350,000
B. 15,050,000 D. 20,300,000
112. On December 1, 2020, Boyd Company purchased a P400,000 tract of land as an investment property. The entity razed
an old building on the property and sold the materials it salvaged from the demolition. The entity incurred additional
costs and realized salvage proceeds as follow:
Demolition of old building 50,000

Legal fees for purchase contract and recording ownership 10,000
Title guarantee insurance 12,000
Proceeds from sale of salvaged materials 8,000
On December 31, 2020, what is the carrying amount of the land?

A. 422,000 C. 460,000
B. 442,000 D. 464,000
113. Isabel Company purchased for P4,500,000 a tract of land as a factory site. An existing building on the property was
razed and construction was begun on a new factory building. The entity incurred the following costs:
Cost of razing old building, net of proceeds from
salvaged materials 300,000
Title insurance and legal fees to purchase land 200,000
Architect fee 950,000
New building construction cost 8,000,000
What is the cost of building in accordance with PIC Interpretations?

A. 8,950,000 C. 9,250,000
B. 9,150,000 D. 9,450,000
114. During the current year, Kim Company had the following transactions pertaining to a new office building:
Purchase price of land and an old unusable building 3,000,000

Legal fees for contract to purchase land 100,000
Architect fee 400,000
Demolition of old building to make room for new
building construction 250,000
Sale of scrap from old building 50,000
Construction cost of new building fully completed 15,000,000
What amount should be reported as initial cost of the new building?

A. 15,500,000 C. 15,700,000
B. 15,600,000 D. 15,750,000
115. Punk Company acquired land and an existing building in exchange for 60,000 ordinary shares. The real property tax
billed showed an assessed value of P3,000,000 for the land and P2,000,000 for the building. The shares have a par
value of P100 and a fair value of P150 per share. Punk also incurred the following costs:
Payment to tenants to vacate the building 100,000

Unpaid property taxes on land and building assumed by Punk 375,000
Assessment by city for sewerage project 10,000
Driveways and parking bays 550,000
Cost of grading and leveling 50,000
Cost of new wing attached to the building 750,000
Cost of new split type air-conditioning units 300,000
Remodeling cost prior to occupancy 200,000
What is the total cost of the building?

A. 4,650,000 C. 5,025,000
20
B. 4,800,000 D. 5,100,000
116. Amble Company exchanged a truck with a carrying amount of P12,000 and a fair value of P20,000 for a truck and
P2,500 cash. The cash flows from the new truck are not expected to be significantly different from the cash flows
of the old truck. The fair value of the truck received was P17,500. At what amount should Amble record the truck
received in the exchange?
A. 7,000 C. 10,500
B. 9,500 D. 17,500
117. On January 1, 2020, Karlo Company constructed a building costing P4,215,000. The weighted-average accumulated
expenditure on the building during 2020 was P3,900,000. The entity borrowed P2,000,000 at 7.5% on January 1,
2020. Funds not needed for construction were temporarily invested in short-term securities and earned P59,000 in
interest revenue. In addition to the construction loan, the entity had two other notes outstanding during the year:
a P1,500,000, 10-year, 10% note payable dated October 1, 2018 and a 5-year P1,000,000, 8% note payable dated
November 2, 2019. Construction was completed on December 31, 2020 and the building is to lease out under an
operating lease. What is the initial cost of the building on December 31, 2020?
A. 4,165,800 C. 4,480,800
B. 4,215,000 D. 4,539,800
118. Rouse Company installed a production assembly line to manufacture tennis balls. In the current year, the entity
acquired a machine and rearranged the assembly line to install the machine. The rearrangement resulted in efficiency
in production. The following expenditures were incurred:
Purchase price of the machine (VAT inclusive 12%) 1,008,000

Labor cost to install machine 250,000
Parts added in rearranging the assembly line 400,000
Cost of testing the machine 150,000
Proceeds from sale of samples produced from testing 50,000
Cost of training worker who will operate the machine 100,000
What is the initial cost of the machine?

A. 1,250,000 C. 1,358,000
B. 1,300,000 D. 1,650,000
119. During 2020, Leah Company constructed asset costing P5,000,000. The weighted average expenditures totaled
P3,000,000. To help for construction an amount of P2,200,000 was borrowed at 10% on January 1, 2020, and funds
not needed from construction were temporarily invested in short-term securities yielding P50,000 in interest
revenue. Other than the construction funds borrowed, the only other debt outstanding during the year was a
P2,500,000 10-year, 12% note payable dated January 1, 2017. What amount of interest should be capitalized during
2020?
A. 266,000 C. 470,000
B. 300,000 D. 500,000
120. On July 1, 2020, Rudd Company reported that a delivery van was destroyed in an accident. On that date, the carrying
amount was P2,500,000. On July 15, 2020, Rudd received and recorded a P700,000 invoice for a new engine installed
in the van in May 2020, and another P500,000 invoice for various repairs. In August, Rudd received P3,500,000
under an insurance policy on the van, which it plans to use to replace the van. What amount should be reported as
gain or loss on disposal of the van?
A. 200,000 loss C. 300,000 gain
B. 0 D. 1,000,000 gain
121. Alyssa Company owned a machine that was bought on January 1, 2017 for P8,000,000. The machine was estimated
to have a useful life of five years and a residual value of P500,000. The entity used the sum of years’ digits method
of depreciation. On January 1, 2020, the entity determined that the total useful life of the machine should have
been four years and the residual value is P600,000. What amount should be recorded as depreciation expense on
the machine for 2020?
A. 700,000 C. 1,400,000
B. 1,000,000 D. 2,000,000
122. Darlene Company owned a machine that was bought on January 1, 2017 for P5,000,000. The machine was estimated
to have a useful life of five years and a residual value of P200,000. The entity used the sum of years’ digits method
of depreciation. On January 1, 2020, the entity determined that the total useful life of the machine should have been
four years and the residual value is P400,000. What amount should be recorded as depreciation for 2020?
A. 460,000 C. 580,000
21
B. 480,000 D. 760,000
123. Bauk Company signed a 10-year lease for office space on January 1, 2020. The entity has the option to renew the
contract for an additional five years on or before January 1, 2030. During January 2021, the entity incurred
P1,400,000 for general improvements on the space. The improvements have a useful life of 16 years. Also the entity
acquired furniture for P300,0000 with a useful life of 12 years. On December 31, 2021, the entity’s intentions to
renew the lease contract are certain. What is the depreciation of the lease improvements in 2021?
A. 87,500 C. 125,000
B. 100,000 D. 140,000
124. On January 1, 2020, Union Company purchased a machine for P264,000 and depreciated it by straight-line method
using an estimated useful life and eight years with no residual value. On January 1, 2023, the entity determined that
the machine had a useful life of six years from the date of acquisition with residual value of P24,000. What is the
accumulated depreciation on December 31, 2023?
A. 146,000 C. 160,000
B. 154,000 D. 176,000
125. Weir Company used straight-line depreciation for property, plant and equipment:
12/31/2021 12/31/2020
Land 25,000 25,000
Buildings 195,000 195,000
Machinery and equipment 695,000 650,000
The depreciation expense for 2021 and 2020 was P55,000 and P50,000, respectively. What amount was debited to
accumulated depreciation during 2021 because of retirement?
A. 10,000 C. 25,000
B. 20,000 D. 40,000
126. Enrico Company used the sum-of-years’-digits method to depreciate equipment purchased in January 2020 for
2,000,000. The residual value is P200,000 and the useful life is four years. What is the carrying amount of the
equipment on December 31, 2022?
A. 180,000 C. 380,000
B. 200,000 D. 450,000
127. Star Company leased a building for product showroom. The ten-year non-renewable lease will expire on December
31, 2025. In January 2020, Star redecorated the showroom and made leasehold improvement of P48,000. The
estimated useful life of the improvement is eight years. The entity used the straight-line method of depreciation.
What amount of leasehold improvement, net of depreciation, should be reported on June 30, 2020?
A. 43,200 C. 45,000
B. 44,000 D. 45,600
128. On January 1, 2014, Nicole Company purchased a new building at a cost of P6,000,000. Depreciation was computed
on the straight-line basis at 4% per year. On January 1, 2020, the building was revalued at a fair value of P8,000,000.
What is the revaluation surplus on December 31, 2020?
A. 1,900,000 C. 3,040,000
B. 1,920,000 D. 3,072,000
129. During the current year, Wilson Company sold a piece of equipment used in production. The equipment had been
accounted for using the revaluation method and details of the accounts and sale are as follows:
Sale price 100,000
Carrying amount of equipment 90,000
Revaluation surplus 20,000
Which of the following is correct about recording the sale?

A. The gain that should be recorded in profit and loss is P30,000
B. The gain that should be recorded in other comprehensive income is P10,000
C. The gain that should be recorded in other comprehensive income is P30,000
D. The gain that should be recorded in profit and loss is P10,000 and the P20,000 revaluation surplus should
be transferred to retained earnings.
Wasting assets
130. In January 2020, Troy Company purchased a mineral mine for P36,000,000 with removable ore estimated by
geological survey at 2,160,000 tons. The property has an estimated value of P3,600,000 after the ore has been
22
extracted. The entity incurred P10,800,000 of development cost preparing the property for the extraction of ore.
During the current year, 270,000 tons were removed, and 240,000 tons were sold. What amount of depletion should
be included in cost of goods sold for 2020?
A. 3,600,000 C. 4,800,000
B. 4,050,000 D. 5,400,000
131. In January 2020, Mark Company purchased a mineral mine for P36,000,000 with removable ore estimated by
geological survey at 4,000,000 tons. The property has an estimated value of P3,600,000 after the ore has been
extracted. The entity incurred P10,800,000 of development cost preparing the property for the extraction of ore.
The entity is required to restore the property to the original condition at an estimated cost of P2,500,000. The
present value of the estimated restoration cost is P1,800,000. During 2020, 400,000 tons were removed, and
300,000 tons were sold. For the year ended December 31, 2020, what amount of depletion should be included in
cost of goods sold?
A. 3,375,000 C. 4,500,000
B. 3,427,500 D. 4,570,000
Intangible assets
132. On January 1, 2020, Kristine Company signed an agreement to operate as a franchise of another entity for an initial
franchise fee of P12,000,000. The same date, the entity paid P4,000,000 and agreed to pay the balance in four equal
annual installments of P2,000,000 beginning January 1, 2021. The down payment is not refundable, and no future
services are required of the franchisor. The entity can borrow at 15% for a loan of this type. Present and future
value factors are as follows:
Present value of 1 at 14% for 4 periods 0.59

Future value of 1 at 14% for 4 periods 1.69
Present value of an ordinary annuity of 1 at 14% for periods 2.91
What is the acquisition cost of the franchise?

A. 8,720,000 C. 12,000,000
B. 9,820,000 D. 13,520,000
133. Royal Company purchased a trademark and incurred the following costs:
One-time trademark purchase price 100,000

Nonrefundable VAT taxes 5,000
Training sales personnel on the use of the new trademark 7,000
Research expenditures associated with the purchase
of the new trademark 24,000
Legal costs incurred to register the trademark 10,500
Salaries of the administrative 12,000
What is the initial cost of the trademark?

A. 100,000 C. 146,500
B. 115,500 D. 158,500
134. Windsor Company developed a trademark and incurred the following expenditures:
Marketing research 600,000

Design cost of trademark 1,700,000
Legal registration fee 200,000
Advertising cost 350,000
Registration with Intellectual Property Office 100,000
What amount should be capitalized as cost of the trademark?

A. 1,900,000 C. 2,450,000
B. 2,000,000 D. 2,600,000
135. On January 1, 2020, Judd Company bought a trademark for P500,000. The entity retained an independent
consultant who estimated the trademark’s remaining useful life to be fifty years. The unamortized cost of the
trademark was P380,000. On December 31, 2020, what amount should be reported as accumulated amortization?
A. 7,600 C. 10,000
B. 9,500 D. 12,500
23
136. Greene Company bought a patent from White Company on January 1, 2020 for P102,000. An independent research
consulting estimated that the remaining useful life of the patent was four years. The remaining legal life was six
years. The unamortized cost of the patent of January 1, 2020 was P30,000. What is the amortization of patent for
2020?
A. 5,000 C. 17,000
B. 7,500 D. 25,500
137. On December 1, 2020, Poplar Company purchased for cash at P18 per share all 200,000 shares of Spruce Company.
On December 1, 2020, Spruce showed a carrying amount of net assets of P3,200,000. The carrying amounts are
equal to the fair values of all the identifiable assets except property, plant and equipment. The fair value of property,
plant and equipment exceeded the carrying amount by P150,000. What amount should be reported as goodwill?
A. 0 C. 400,000
B. 250,000 D. 550,000
138. On January 1, 2020, Paye Company purchased another entity at a cost that resulted in recognition of goodwill of
P200,000. During the first quarter, the entity spent an additional P80,000 on expenditures designed to maintain
goodwill. On December 31, 2020, what amount should be reported as goodwill?
A. 180,000 C. 252,000
B. 200,000 D. 280,000
Asset impairment
139. Jacqueline Company had equipment with carrying amount of P4,500,000 at year-end:
Expected discounted net cash flows 4,000,000

Fair value, assuming similar other asset 4,150,000
Fair value, assuming the asset is sold stand-alone 4,280,000
What is the impairment loss for the year?

A. 0 C. 350,000
B. 220,000 D. 500,000
140. Mark Company acquired equipment on January 1, 2019 for P5,000,000. The equipment has a 10-year useful life and
no residual value. On December 31, 2020, the following information was obtained:
Expected value of undiscounted cash flows 3,600,000

Fair value estimated with in-use premise 3,700,000
Fair value estimated with in-exchange premise 3,500,000
What amount should be recognized as impairment loss for 2020?

A. 0 C. 400,000
B. 300,000 D. 500,000
141. Synthia Company purchased a sewing machine for P1,000,000 on July 1, 2020. The machine had a ten-year life, a
P50,000 residual value, and was depreciated using the straight-line method. On December 31, 2022, a test for
impairment indicates that the undiscounted cash flows from the sewing machine are less than carrying amount.
The machine’s actual fair value on December 31, 2022 is P300,000. What is loss on impairment for 2022?
A. 415,000 C. 475,000
B. 462,500 D. 650,000
142. On January 1, 2020, Parram Company purchased equipment at a total cost of P6,000,000 with a 10-year useful life
and no residual value. On January 1, 2022, the entity revalued the equipment and it was determined that the sound
value on such date is P8,000,000. On January 1, 2025, the entity decided to test the asset for impairment. It was
determined that the fair value of the equipment on such date was P2,600,000. What amount of impairment loss
should be recognized in 2025?
A. 0 C. 2,000,000
B. 400,000 D. 2,400,000
143. On January 1, 2020, Westfield Company purchased a building to be leased out under an operating lease. The total
payment for the purchase is P9,900,000 which included a 10% non-recoverable purchase tax. The entity used the
cost model for the investment property. The building has a useful life of 20 years. On December 31, 2021,
impairment indicators are present. On such date, it was determined that the fair value less cost of disposal of the
building was P7,000,000. What amount of impairment loss should be recognized for 2021?
A. 0 C. 2,405,000
B. 1,910,000 D. 2,900,000
24
144. On July 1, 2020, Carver Company acquired Jones Company in a business combination. As a result of the combination,
the amounts of goodwill recorded for each of the three reporting units of the acquired were Retailing P300,000,
Service P200,000 and Financing P400,000. Near the end of 2020 a new major competitor entered the market and
Carver was concerned that this might cause a significant decline in the value of the goodwill for the three major
reporting units on December 31, 2020. On such date, the amounts of goodwill are Retailing P250,000, Service
P100,000 and Financing P600,000. What amount of impairment of goodwill should be recorded on December 31,
2020?
A. 0 C. 150,000
B. 100,000 D. 250,000
145. Marjorie Company acquired a machine for P320,000 on August 31, 2020. The machine has a five-year life, a P50,000
residual value and was depreciated using the straight-line method. On May 31, 2023, a test for recoverability reveals
that the expected net future undiscounted cash inflows related to the continued use and eventual disposal of the
machine total P150,000. The machine’s actual fair value on May 31, 2023 is P135,000 with no residual value.
Assuming a loss on impairment is recognized on May 31, 2023, what is the depreciation expense for June 2023?
A. 3,148 C. 5,000
B. 4,500 D. 6,352
146. Ben Company provided the following calculation of an impairment loss on December 31, 2020:
Goodwill Net assets

Carrying amount 3,000,000 9,000,000
Impairment loss (3,000,000) (2,000,000)
Adjusted carrying amounts - 7,000,000
There has been a favorable change in the estimate of the recoverable amount of the net assets. The recoverable
amount is not P8,000,000 on December 31, 2021. The carrying amount of the net assets would have been
P7,200,000 on December 31, 2021 If there was no impairment loss recognized on December 31, 2020. Assets are
depreciated at 20% of reducing balance. What gain on reversal of impairment should be recognized in 2021?
A. 0 C. 1,600,000
B. 1,000,000 D. 2,400,000
Software development cost & Research & development

147. On January 1, 2020, Arlyn Company had capitalized cost of P6,000,000 for a new computer software with an
economic life of 4 years. Sales for 2020 amounted to P3,000,000. The total sales of software over the economic life
are expected to be P10,000,000. The pattern of future sales cannot be measured reliably. On December 31, 2020,
the software had a fair value less cost of disposal of P4,400,000. What net amount of the capitalized software cost
should be reported on December 31, 2020?
A. 4,200,000 C. 4,500,000
B. 4,400,000 D. 6,000,000
148. On January 1, 2020, Alpha Company signed an annual maintenance agreement with a software provider for P15,000
and the maintenance period begins on March 1, 2020. Alpha also incurred P5,000 on January 1, 2020 related to
software modification request that will increase the functionality of the software asset over five years using the
straight-line method. What is the total expense that should be recognized as a result of the maintenance agreement
and software modification for 2020?
A. 5,000 C. 16,000
B. 13,500 D. 20,000
149. Flip Company incurred the following computer software costs for the development and sale of software programs
during the current year:
Planning costs 500,000

Design of the software 1,500,000
Substantial testing of the project’s initial stages 750,000
Production and packaging costs for the first month’s sales 5,000,000
Costs of producing product masters and technological
feasibility was established 2,000,000
The project was not under any contractual arrangement when these expenditures were incurred. What amount
should be reported as research and development expense for the current year?
A. 2,000,000 C. 5,000,000
B. 2,750,000 D. 9,750,000
25
150. Jeff Company incurred the following costs during the current year:
Routine one-going effort to refine, enrich or improve

an existing product 2,500,000
Design, construction and testing of preproduction models 2,200,000
Quality control during commercial production 3,000,000
Laboratory research for discovery of new knowledge 3,600,000
What is the total research and development expense?

A. 4,700,000 C. 5,800,000
B. 5,500,000 D. 6,600,000
151. Cody Company incurred the following costs during the current year:
Design of tools, jigs, molds, and dies involving new technology 15,000
Modification of the formulation process 160,000
Trouble shooting of breakdowns during commercial production 100,000
Adaptation of an existing capability to a particular customer
Need as part of a continuing commercial activity 110,000
What amount should be recognized as research and development expense for the current year?
A. 125,000 C. 235,000
B. 160,000 D. 285,000
152. Ball Company incurred the following research and development costs during the current year:
Direct cots of doing contract research and development work

for the government to be reimbursed by government unit 400,000
Depreciation 300,000
Salaries 700,000
Indirect costs appropriately allocated 200,000
Materials 180,000
What is the total research and development expense in the current year?
A. 1,080,000 C. 1,580,000
B. 1,380,000 D. 1,780,000
153. Howard Company incurred the following research and development costs in the current year:
Materials used in R & D projects 400,000

Equipment acquired that will have alternate future use in
Future R & D projects 2,000,000
Depreciation on above equipment 500,000
Personal costs of persons involved in R & D projects 1,000,000
Consulting fees paid to outsiders for R & D projects 100,000
Indirect costs reasonably allocable for R & D projects 200,000
What amount of R & D costs should be expensed the current year?

A. 1,500,000 C. 2,200,000
B. 1,700,00 D. 3,500,000
154. Metal Company incurred the following costs during the current year:
Laboratory research aimed at discovery of new knowledge 75,000

Design of tools, jigs, molds and dies involving new technology 22,000
Quality control during commercial production, including
routine testing 35,000
Equipment acquired two years ago, having an estimated useful
life of five years with no residual value, used in various
R & D projects the entire year 150,000
R & D services performed by Stone Company for Metal Company 23,000
R & D services performed by Metal Company for Kaye Company 2,000
26
What amount of R & D expense should be reported in the current year?
A. 120,000 C. 187,000
B. 150,000 D. 217,000
Government grants & Assistance

155. On January 1, 2020, the city government provided Eros Company a zero-interest, P8,000,000 loan with a 4-year
term. The prevailing market rate of interest for this type of loan is 8%. The PV of 1 at 8% for 4 periods is 0.735, and
the PV of an ordinary annuity of 1 at 8% for 4 periods is 3.312. What mount of deferred grant income should be
recognized on December 31, 2021?
A. 0 C. 1,649,600
B. 1,141,568 D. 2,120,000
156. On January 1, 2020, Jessica Company received a consolidated grant of P12,000,000. Three fourths of the grant will
be utilized to purchase a collect building for students from underdeveloped countries. The balance of the grant is
for subsidizing the tuition costs of those students for four years from date of grant. The building was purchased in
January 2020 and is to be depreciated using the straight-line-method over 10 years. The tuition costs paid in 2020
amounted to P600,000. What amount of grant income should be recognized for 2020?
A. 1,050,000 C. 1,650,000
B. 1,200,000 D. 3,000,000
Current liabilities, provisions & contingencies

157. Jelline Company had the following liabilities on December 31, 2020:
Accounts payable 55,000

Unsecured notes, 8% due 7/1/2021 400,000
Accrued expenses 35,000
Contingent liability 450,000
Deferred tax liability 25,000
Senior bonds, 7% due 3/31/2021 1,000,000
The contingent liability is an accrual for possible loss on a P1,000,000 lawsuit filed against the entity. The legal
counsel expects the suit to be settled in 2021 and has estimated that the entity will be liable for damages in the
range of P450,000 to P750,000. The deferred tax liability is not related to an asset for financial reporting and is
expected to reverse in 2022. What amount should be reported on December 31, 2020 for current liabilities?
A. 515,0000 C. 1,490,000
B. 940,000 D. 1,515,000
158. Eleysia Company recorded purchases at gross amount but decided to change to recording purchases net of purchase
discounts. Discounts available on purchases recorded from October 1, 2020 to September 30, 2021 totaled P20,000.
Of this amount, P2,000 is still available in the accounts payable.
The balances in the accounts as of and for the year ended September 30, 2021 before conversion are:
Purchases 1,000,000
Purchase discounts taken 8,000
Accounts payable 300,000
What amount should be reported as accounts payable on September 30, 2021?

A. 282,000 C. 292,000
B. 288,000 D. 298,000
159. Lyle Company is preparing financial statements for the year ended December 31, 2020. Accounts payable amounted
to P360,000 before any necessary year-end adjustment related to the following:
• On December 31, 2020, Lyle has a P50,000d debit balance in accounts payable to Ross, a supplier, resulting
from a P50,000 advance payment for goods to be manufactured.
• Checks in the amount of P100,000 were written to vendors and recorded on December 20, 2020. The checks
were mailed on January 5, 2021.
What amount should be recorded as accounts payable on December 31, 2020?

A. 210,000 C. 410,000
B. 310,000 D. 510,000
160. Ashwood Company reported accounts payable on December 31, 2020 at P900,000 before any necessary year-end
adjustments relating to the following:
27
• Goods were in transit from a vendor to Ashwood on December 31, 2020. The invoice cost was P50,000, and
the goods were shipped FOB shipping point on December 29, 2020. The goods were received on January 4,
2021.
• Goods shipped FOB shipping point on December 20, 2020 from a vendor to Ashwood were lost in transit. The
invoice cost was P25,000. On January 5, 2021, Ashwood filed a P25,000 claim against the common carrier.
• Goods shipped FOB destination on December 21, 2020 from a vendor to Ashwood were received on January
6, 2021. The invoice cost was P15,000.
What amount should be reported as accounts payable on December 31, 2020?

A. 925,000 C. 950,000
B. 940,000 D. 975,000
161. Fay Company pays outside salespersons fixed monthly salaries and commission on sales. Sales commissions are
computed and paid on a monthly basis in the month following the month of sale, and the fixed salaries are treated
as advances against commissions. However, if the fixed salaries for salespersons exceed their sales commissions
earned for a month, such excess is not charged backed to them. Pertinent data for the month of March for three
salespersons are as follows:
Salesperson Fixed salary Net sales Commission

A 10,000 200,000 4%
B 14,000 400,000 6%
C 18,000 600,000 6%
What amount should be accrued for sales commission on March 31?

A. 26,000 C. 68,000
B. 28,000 D. 70,000
162. Jasmine Company sells appliance service contracts agreeing to repair appliances for a two-year period. The past
experience is that, of the total amount spend for repairs on services contracts, 40% is incurred evenly during the first
contract year and 60% evenly during the second contract year. Receipts from service contract sales for 2020 and
2021 are P500,000 and P600,000, respectively. Receipts from contracts are credited to unearned service contract
revenue. All sales are made evenly during the year. What amount should be reported as unearned service contract
revenue on December 31, 2021?
A. 360,000 C. 480,000
B. 470,000 C. 630,000
163. Janelle Video sells one and two-year mail order subscriptions for video of the month business. Subscriptions are
collected in advance and credited to sales. An analysis of the recorded sales activity revealed the following:
2019 2020
Sales 420,000 500,000
Cancellations 20,000 30,000
Subscription expiration:
2019 120,000
2020 155,000 130,000
2021 125,000 200,000
2022 140,000
On December 31, 2020, what is the unearned subscription revenue?

A. 340,000 C. 470,000
B. 465,000 D. 495,000
164. Merill Company offers three payment plans on its twelve-month contracts. Information on the three plans and the
number of children enrolled in each plan for the September 1, 2020 to August 31, 2021 contract year as follows:
Initial payment Monthly fee Number of
per child per child children
Plan A 50,000 - 15
Plan B 20,000 3,000 12
Plan C 5,000 9
The entity received P990,000 of initial payments on September 1, 2020 and P324,000 of monthly fees during the
period September 1, 2020 to December 31, 2020, On December 31, 2020, what amount should be reported as
deferred revenue?
A. 330,000 C. 660,000
28
B. 438,000 D. 990,000
165. Merill Company offers a cash rebates of P50 on each P200 package of biscuits sold during the year. Historically, 30%
of the customers mail in the rebate form. During the year, 7,700 packages of biscuits are sold, and 1,470 P50 rebates
are mailed to customers. What amount of rebate liability should be recognized at year-end?
A. 42,000 C. 115,500
B. 73,500 D. 311,500
166. Janine Company sells products in reusable containers. The customer is charged a deposit for each container
delivered and receives a refund for each container returned within two years after the year of delivery. The entity
accounts for the containers not returned within the time limit as being retired by sale at the deposit amount.
Information for 2020 is as follows:
Containers deposits on December 31,2019 from deliveries in

2018 150,000
2019 430,000 580,000
Deposits for containers delivered in 2020 780,000
Deposits for containers returned in 2020 from deliveries in:
2018 90,000
2019 250,000
2020 286,000 626,000
On December 31, 2020, what amount should be reported as liability for deposits on returnable containers?
A. 494,000 C. 674,000
B. 584,000 D. 734,000
167. City Company included one coupon in each package sold. A towel is offered as a premium to customers who send
in 10 coupons.
2020 2021
Packages sold 500,000 800,000
Number of towels acquired at P40 per towel 30,000 45,000
Number of towels distributed as premium 20,000 50,000
Number of towels to be distributed as premium
next period 5,000 10,000
What amount should be reported as premium expense in 2021?

A. 1,800,000 C. 2,200,000
B. 2,000,000 D. 2,400,000
168. Kristine Company records stamp service revenue and provides for the cost of redemption in the year stamps are
sold to licenses. The past experience indicates that only 80% of the stamps sold to licenses will be redeemed. The
liability for stamp redemptions was P6,000,000 on January 1, 2020. Additional information during the year is as
follows:
Stamp service revenue form stamps sold to licenses 4,000,000

Cost of redemption for stamps sold prior to January 1, 2020 2,750,000
If all the stamps sold in 2020 were presented for redemption in 2021, the redemption cost would be P2,250,000.
What is the estimated liability on December 31, 2020?
A. 3,250,000 C. 5,500,000
B. 5,050,000 D. 7,250,000
169. Oak Company offers a three-year warranty on its products. The entity previously estimated warranty costs to be 2%
of sales. Due to a technological advance in production at the beginning of 2022, the entity now believes 1% of sales
to be a better estimate of warranty costs. Warranty costs of P80,000 and P96,000 were reported in 2020 and 2021,
respectively. Sales for 2022 were P5,000,000. What is the warranty expense for 2022?
A. 50,000 C. 100,000
B. 88,000 D. 138,000
170. During 2020, Mel Company introduced a new line of machines that carry a three-year warranty against defects.
Based on experience, warranty costs are estimated at 2% of sales in the year of sale, 4% in the year after sale, and
6% in the second year after sale. Sales were P1,200,00, P3,000,000 and P4,200,000 for 2020, 2021 and 2022
respectively. Actual warranty expenditures were P18,000, P90,000 and P270,000 for 2020, 2021 and 2022,
respectively. What amount should be reported as warranty liability on December 31, 2022?
29
A. 0 C. 408,000
B. 30,000 D. 630,000
171. After three profitable years, Clarisse Company decided to offer a bonus to the branch manager of 25% of income
over P2,000,000 earned by the branch. The income for the branch was P3,500,000 before tax and before bonus for
the current year. The bonus is computed on income in excess of P2,000,000 after deducting the bonus but before
deducting tax. What is the bonus for the current year?
A. 300,000 C. 400,000
B. 375,000 D. 700,000
172. Able Company provides an incentive compensation plan under which the president received a bonus equal to 10%
of the income before tax but after deduction of the bonus. The tax rate is 40% and net income after bonus and
income tax was P360,000. What was the amount of the bonus?
A. 36,000 C. 66,000
B. 60,000 D. 90,000
173. On February 5, 2021, an employee filed a P2,000,000 lawsuit against Steel Company for damages suffered when
one of Steel’s plants exploded on December 20, 2020. Steel’s legal counsel expects the entity will lose the lawsuit
estimates the loss to be between P500,000 but the entity will not agree to the settlement. On December 31, 2020,
what amount should be reported as liability from lawsuit?
A. 500,000 C. 1,000,000
B. 900,000 D. 2,000,000
174. Ace Company is involved in litigation regarding a faulty product sold in a prior year. The entity has consulted with
an attorney and determined that there is a 50% chance of losing. The attorney estimated that the amount of any
payment would be between P500,000 and P800,000 with P500,000 as the best estimate. What is the required
journal entry as a result of this litigation?
A. No journal entry is required.
B. Debit Litigation Expense and credit Litigation Liability P250,000
C. Debit Litigation Expense and credit Litigation Liability P500,000
D. Debit Litigation Expense and credit Litigation Liability P660,000
175. During 2020, Rina Company is the defendant in a patent infringement lawsuit. The lawyers believe there is a 30%
chance that the court will dismiss the case and the entity will incur no outflow of economic benefits. However, if
the court rules in favor of the claimant, the lawyer believe that there is a 20% chance that the entity will be required
to pay damages of P200,000 and an 80% chance that the entity will be required to pay damages of P100,000. Other
outcomes are unlikely. The court is expected to rule in late December 2021. There is no indication that the claimant
will settle out of court. A 7% risk adjustment factor to the probability-weighted expected cash flows is considered
appropriate to reflect the uncertainties in the cash flow estimates. An appropriate discount rate is 5% per year. The
present value of 1 at 5% for one period is 0.95. What is the measurement of the provision for lawsuit?
A. 0 C. 85,396
B. 36,594 D. 89,880
176. In May 2019, Caso Company filed suit against Wayne seeking P1,900,000 damages for patent infringement. A court
verdict in November 2020 awarded Caso P1,500,000 in damages but Wayne’s appeal is not expected to be decided
before 2018. Caso’s counsel believes it is probable that Caso will be successful against Wayne for an estimated
amount in the range between P800,000 and P1,000,000 with P1,000,000 considered the most likely amount. What
amount should Caso record as income from the lawsuit in 2020?
A. 0 C. 1,000,000
B. 800,000 D. 1,500,000
Note payable
177. Cristy Company acquired a new machine which had a cash price of P2,100,000. The payment terms are down
payment P500,000 note payable in 3 equal installments of P600,000 each year and 10,000 ordinary shares with par
value of P20 and fair value of P35 per share. Prior to use, the entity incurred installation cost of P80,000. What
amount of discount on note payable should be recognized on the date of purchase?
A. 0 C. 550,000
B. 150,000 D. 1,250,000
178. On December 31, 2020, Roth Company issued a P1,000,000 face value note payable to Wake Company in exchange
for services rendered to Roth. The note made at usual trade terms, is due in nine months and bears interest, payable
at maturity, at the annual rate of 3%. The market interest rate is 8%. The compound interest factor of 1 is due in
nine months at 8% is 0.944. At what amount should the note payable be reported on December 31, 2020?
A. 671,000 C. 1,000,000
30
B. 965,200 D. 1,030,000
179. On July 1, 2020, Marseto Company borrowed P100,000 on a 10%, five-year interest-bearing note. On December 31,
2020, the fair value of the note is determined to be P97,500. Marseto elects the fair value option for reporting
financial liabilities. On December 31, 2020, what amounts should be presented for this note?
A B C D
Interest expense 0 5,000 10,000 10,000
Note payable 97,500 97,500 97,500 100,000
Gain (loss) (7,500) 2,500 2,500 0
180. On January 1, 2020, London Company borrowed P500,000 on an 8%, non-interest bearing note due in four years.
The present value of the note on January 1, 2020 was P367,500. The entity elects the fair value option for reporting
financial liabilities. On December 31, 2020, it is determined the fair value of the note is P408,150. At what amount
should the discount on note payable be presented on December 31, 2020?
A. 0 C. 103,100
B. 91,850 D. 132,500
Bonds payable
181. Blue Company reported the following information on December 31, 2020:
11% registered debentures, callable in 2036, due in 2040 700,000

12% collateral trust bonds, convertible into ordinary shares
beginning in 2029 due in 2039 600,000
10% subordinated debentures P30,000 maturing annually
beginning 2026 300,000
What is the total amount of term bonds?

A. 600,000 C. 1,000,000
B. 700,000 D. 1,300,000
182. Hancock Company reported the following on December 31, 2020:
Unsecured
10% registered bonds, P25,000 maturing annually
beginning 2018 275,000
11% convertible bonds, callable beginning in 2028,
due 2038 125,000
Secured
12% guaranty security bonds, due 2030 275,000
13% commodity-backed bonds, P50,000 maturing
annually beginning in 2026 200,000
What are the total amounts of serial bonds and debenture bonds?
A B C D
Serial bonds 200,000 450,000 475,000 475,000
Debenture bonds 650,000 400,000 125,000 400,000
183. During the current year, Lake Company issued 3,000 of 9%, P1,000 face value bonds at 101. In connection with the
sale of these bonds, the entity paid the following expenses:
Promotional cost 20,000

Engraving and printing 25,000
Underwriter commission 200,000
What amount should be recorded as bond issue cost to be amortized over the term of the bonds?
A. 0 C. 225,000
B. 220,000 D. 245,000
184. On January 1, 2020, Southern Company received P107,720 for a P100,000 face amount, 12% bond, a price that
yields 10%. The bonds pay interest semi-annually. The entity elects the fair value option for valuing financial
liabilities. On December 31, 2020, the fair value of the bond is determined to be P106,460. The entity recognized
interest expense of P12,000 in the 2020 income statement. What was the gain or loss recognized in the income
statement to report this bond at fair value?
31
A. 13,260 loss C. 1,260 gain
B. 12,000 loss D. 6,460 gain
185. On January 1, 2020, West Company issued 9% bonds in the amount of P500,000 which mature on January 1, 2030.
The bonds were issued for P469,500 to yield 10%. Interest is payable annually on December 31. The entity uses the
interest method of amortizing bond discount and does not elect the fair value option for reporting financial
liabilities. On June 30, 2020, what amount should be reported as bonds payable?
A. 469,500 C. 471,025
B. 470,475 D. 500,000
186. Webb Company has outstanding a 7%, ten-year P100,000 face value bond. The bond was originally sold to yield 6%
annual interest. The entity uses the effective method to amortize bonds premium and does not elect the fair value
option for reporting financial liabilities. On June 30, 2020, the carrying amount of the outstanding bond was
P105,000. What amount of unamortized premium on bond should be reported on June 30, 2021?
A. 1,050 C. 4,300
B. 3,950 D. 4,500
187. On January 1, 2020, Hubert Company sold 12% bonds with a face value of P6,000,000. The bonds mature in five
years and interest is paid semi-annually on June 30 and December 31. The bonds were sold for 6,462,000 to yield
10%. The entity used the effective interest method of amortization. What is the interest expense for 2020?
A. 600,000 C. 646,200
B. 644,355 D. 720,000
188. On July 1, 2020, after recording interest and amortization, York Company converted P1,000,000 of 12% convertible
bonds into 50,000 ordinary shares of P1 par value. On the conversion date, the carrying amount of the bonds was
P1,300,000. The market value of the bond was P1,400,000, and the shares were publicly trading at P30 per share.
Using the book value method, what amount of share premium should be recorded as a result of the conversion?
A. 950,000 C. 1,350,000
B. 1,250,000 D. 1,500,000
189. On December 31, 2020, Moss Company issued P1,000,000 of 11% bonds at 109. Each P1,000 bond was issued with
fifty detachable share warrants, each of which entitled the bondholder to purchase one ordinary share of P5 par
for P25. Immediately after issuance, the market value of each warrant was P4. On December 31, 2020, what amount
should be recorded as discount or premium on issuance of bonds payable?
A. 40,000 premium C. 110,000 discount
B. 90,000 premium D. 200,000 discount
190. On June 30, 2020, King Company had outstanding 9%, P5,000,000 face value bonds maturing on June 30, 2025.
Interest was payable semi-annually every June 30 and December 31. The entity did not elect the fair value option
for reporting financial liabilities. On June 30, 2020, after amortization was recorded for the period, the unamortized
bond premium and bond issue cost were P30,000 and P50,000 respectively. On that date, the entity acquired all
outstanding bonds on the open market at 98 and retired them. On June 30, 2020, what amount should be
recognized as gain before income tax on redemption of bonds?
A. 20,000 C. 120,000
B. 80,000 D. 180,000
191. On December 31, 2020, Laurence Company reported bonds payable having a face amount of P2,000,000 and
unamortized discount of P160,000. The bonds were retired at 102 on October 31,2021. Accrued interest on October
31, 2021 amounted to P50,000 which was paid in cash. The annual discount amortization for 2021 was P30,000.
What amount of gain or loss on extinguishment should be recognized for 2021?
A. 175,000 loss C. 125,000 loss
B. 170,000 loss D. 175,000 gain
192. On January 1, 2020, Feather Company issued P8,000,000 10% bonds at 105 which are due on December 31, 2024.
Each 1,000 bond was issued with 20 non-detachable share warrants, each of which entitled the bondholder to
purchase one share of Feather for P45 with a par value of P20 per share. On January 1, 2020, the market value of
each warrant is P4 while the bond ex-warrant was selling at 95. What is the equity component from the issuance of
bonds with share warrants?
A. 0 C. 640,000
B. 400,000 D. 800,000
Troubled-debt restructuring
193. sDuring 2020, Mae Company experienced financial difficulties and is likely to default on a P5,000,000, 15% three-
year note dated January 1, 201/, payable to Global Bank. On December 31, 2020, the bank agreed to settle the note
32
and unpaid interest of P750,000 for P4,000,000 cash payable on January 31, 2021. What amount should be reported
as gain from extinguishment of debt in the 2020 income statement?
A. 0 C. 1,750,000
B. 1,000,000 D. 2,250,000
194. Taft Company borrowed P1,000,000 from a bank on July 1, 2020. As part of the loan agreement, the borrower
granted the bank a security interest in land with original cost of P750,000. The fair value of the land on July 1, 2020
was P900,000. On June 30, 2021, the borrower defaulted on the loan and the land was transferred to the bank in
full settlement of the loan on June 30, 2021. The land had a fair value of P950,000 on June 30, 2021. What amount
should be recorded by the bank for the land on June 30, 2021?
A. 0 C. 900,000
B. 750,000 D. 950,000
195. Tabloid Company negotiated with a major creditor to restructure a maturing debt on December 31, 2020. The
creditor was owed a principal of P10,000,000 and interest of P1,200,000 but agreed to accept equipment with fair
value of P8,000,000 and note receivable from Tabloid Company’s customer with a face value of P2,000,000. The
equipment had a carrying amount of P5,000,000.
What amount should be recognized as gain from extinguishment of debt on December 31, 2020?
A. 0 C. 2,000,000
B. 1,200,000 D. 4,200,000
Questions 196 & 197 are based on the following information:

Knob Company provided the following information relating to the transfer of real estate pursuant to a troubled-debt restricting in
full liquidation of liability:
Carrying amount of liability liquidated 150,000

Carrying amount of real estate transferred 100,000
Fair value of real estate transferred 90,000
196. What amount should be reported as gain or loss on restructuring of payable?

A. 10,000 loss C. 50,000 gain
B. 0 D. 60,000 gain
197. What amount should be reported as a gain or loss on transfer of real estate?
A. 50,000 loss C. 0
B. 10,000 loss D. 50,000 gain
Post-retirement benefits
198. Seda Company provided the following information related to pension plan:
Actuarial estimate of projected benefit obligation at 1/1/2020 72,000

Assumed discount rate 10%
Service cost for 2020 18,000
Pension benefits paid during 2020 15,000
No change in actuarial estimates occurred during 2020. What amount should be reported as projected benefit
obligation on December 31, 2020?
A. 64,200 C. 79,200
B. 75,000 D. 82,200
199. Payne Company implemented a defined benefit plan on January 1, 2020. The following data are provided on
December 31, 2020:
Projected benefit obligation 103,000

Plan assets at fair value 78,000
Net periodic pension cost 90,000
Employer’s contribution 70,000
What amount should be recorded as pension liability on December 31, 2020?

A. 0 C. 25,000
B. 20,000 D. 45,000
200. Salve Company reported plan assets at fair value of P2,000,000 and projected benefit obligation of P4,000,000 on
December 31, 2020. On January 1, 2020, the prepaid/accrued benefit cost account had a credit balance of
33
P1,5000,000. During the year, the entity recognized contributions of P1,200,000 and remeasurement loss of
P600,000. There was no remeasurement gain or loss on January 1, 2020. What amount of employee benefit expense
was recognized for 2020?
A. 500,000 C. 1,200,000
B. 1,100,000 D. 1,700,000
201. Hoax Company reported the following data on January 1, 2020 based on PAS 19R:
Projected benefit obligation 10,000,000

Fair value of plan assets 9,000,000
During the current year, the actuary determined the current service cost at P2,000,000 and interest cost at
P1,000,000. The interest income on plan assets was P900,000 while actual return on plan assets was P600,000.
There was a decrease in the projected benefit obligation due to changes in actuarial assumptions of P200,000. The
average remaining service period of the employees is 10 years. What is the defined benefit cost for the current
year?
A. 2,000,000 C. 2,200,000
B. 2,100,000 D. 2,500,000
202. On December 31, 2020, Veronica Company reported fair value of plan assets P9,000,000 and project benefit
obligation P9,400,000. On December 31, 2021, the entity reported fair value of plan assets P9,900,000 and
projected benefit obligation P11,100,000. During 2021, contribution was P1,260,000 and benefits paid were
P1,125,000. The discount rate for 2020 and 2021 were 10% and 9% respectively. What is the remeasurement gain
or loss attributable to plan assets for 2021?
A. 45,000 gain C. 135,000 gain
B. 45,000 loss D. 135,000 loss
203. On January 1, 2020, before adoption of PAS 19R, Church Company had a projected benefit obligation of P4,350,000
and pension plan assets with a fair value of P2,650,000. The entity had unrecognized past service cost of P450,000
and an unrecognized actuarial gain of P150,000. The entity decided to adopt PAS 19R on January 1, 2020. What is
included in the journal entry to effect the initial adoption on January 1, 2020 of PAS 19R?
A. No entry is necessary
B. Debit expense P300,000
C. Debit retained earnings P300,000
D. Debit prepaid/accrued benefit cost P450,000
Other employee benefits

204. West Company determined that is has an obligation relating to employees’ rights to received compensation for
future absences attributable to employees’ services already rendered. The obligation relates to rights that vest, and
payment of the compensation is probable. The amounts of West’s obligations as of December 31, 2020 are
reasonably estimated as follows:
Vacation pay 110,000
Sick pay 80,000
On December 31, 2020, what amount should be reported as liability for compensated absences?
A. 0 C. 110,000
B. 80,000 D. 190,000
205. John Company grants all employees two weeks of paid vacation for each full year of employment. Unused vacation
time can be accumulated and carried forward to succeeding years and will be paid at the salaries in effect when
vacations are taken or when employment is terminated. There was no employee turnover in 2020. Additional
information relating to the year ended December 31, 2020 is as follows:
Liability for accumulated vacations on January 1, 2020 350,000

Pre-2020 accrued vacations taken from January 1, 2020 to
September 30, 2020 (the authorized period for vacations) 200,000
Vacations earned for work in 2020 adjusted to current rate 300,000
The entity granted a 10% salary increase to all employees on October 1, 2020, the annual salary increase date. What
amount should be reported as vacation pay expense for 2020?
A. 300,000 C. 335,000
B. 315,000 D. 450,000
34
206. On September 1, 2020, Joanna Company offered special termination benefits to employees who had reached the
early retirement age. The termination benefits consisted of lump-sum and periodic future payments. Additionally,
the employees accepting the offer received the usual early retirement pension benefits. The offer expired on
November 30, 2020. Information on December 31, 2020 is as follows
• Lump-sum payments totaling P475,000 were made January 1, 2020.

• Periodic payments of P60,000 annually for three years will begin January 1, 2022. The present value on
December 31, 2020 of these payments was P155,000.
• Reduction of accrued pension costs on December 31, 2020 for the terminating employees was P45,000
On December 31, 2020, what is the total liability for special termination benefits?
A. 475,000 C. 630,000
B. 585,000 D. 655,000
Leases
207. Rapp Company leased a new machine to a lessee on January 1, 2020. The lease is an operating lease and expires on
January 1, 2025. The annual rental is P90,000. Additionally, on January 1, 2020, the lessee paid P50,000 to the lessor
as a lease bonus and P25,000 as a security deposit to be refunded upon expiration of the lease. What amount of
rental revenue should be recognized for 2020?
A. 90,000 C. 125,000
B. 100,000 D. 140,000
208. Wall Company leased office premises to a lessee for a five-year term beginning January 1, 2020. Under the terms
of the operating lease, rent for the first year is P80,000 and rent for years two through five is P125,000 per annum.
However, as an inducement to enter the lease, Wall granted the lessee the first six months of the lease rent-free.
What amount should be reported as rental income for 2020?
A. 80,000 C. 116,000
B. 108,000 D. 120,000
209. On January 1, 2020, Wren Company leased a building to a lessee under an operating lease for ten years at P500,000
per year, payable the first day of each lease year. The lessor paid P150,000 to a real estate broker as a finder fee.
The building is depreciated P120,000 per year. The entity incurred insurance and property tax expense totaling
P90,000. What is the net rental income for 2020?
A. 275,000 C. 350,000
B. 290,000 D. 365,000
210. Adrian Company leased an office space from a lessor at an annual rental of P300,000 on January 1, 2020. The lease
will commence on January 1, 2020 and will end on December 31, 2023. The lease agreement specifies that rental
will be paid at the beginning of each year and will increase at 10% annually. What amount of rent expense should
be recognized for 2021?
A. 300,000 C. 348,075
B. 330,000 D. 363,000
211. On October 1, 2020, Nova Company leased office space at a monthly rental of P350,000 for ten years expiring on
September 30, 2030. Payment is made at the start of every month. As an inducement to enter into the lease, the
lessor permitted the lessee to occupy the premises rent-free from October 1, 2020 to December 31, 2020. On
December 31, 2021, what amount should be recognized as accrued rent payable?
A. 0 C. 1,023,750
B. 918,750 D. 4,095,000
212. Christopher Company leased machine on January 1, 2020 with the following information:
Annual rental payable at the beginning of each lease year 400,000

Lease term 10 years
Useful life of machine 12 years
Implicit interest rate 14%
PV of an annuity of 1 in advance for 10 periods at 14% 5.95
PV of 1 for 10 periods at 14% .27
The entity has the option to purchase the machine on January 1, 2030 by paying P500,000 which approximates the
fair value of the machine on option exercise date. What amount should be recognized initially as lease liability?
A. 0 C. 2,380,000
B. 2,245,000 D. 2,515,000
35
213. Mane Company lease equipment with a ten-year useful life, from Joy Company on January 1, 2020 for an eight-year
period expiring December 31, 2028. Equal annual payments under the lease are P800,000 and are due on January
1 of each year. The first payment was made on January 1, 2020. The rate of interest contemplated by Mane and Joy
is 8%. The cash selling price of the equipment is P4,965,000 and the cost of the equipment on Joy’s accounting
records was P4,200,000. The lease provide for a bargain purchase option on the part of the lessee upon the lease
expiration. What total amount of expense should Mane recognize for the year ended December 31, 2020?
A. 496,500 C. 893,700
B. 829,700 D. 953,825
214. Howe Company leased equipment to a lessee on January 1, 2020 for an eight-year period expiring December 31,
2027. Equal payments under the lease are P600,000 and are due on January 1 of each year. The first payment made
on January 1, 2020. The list selling price of the equipment is P3,520,000 and the carrying mount is P2,800,000. The
lease is appropriately accounted for as a sales-type lease. The present value of the lease payments is P3,300,000.
What amount of profit on the sale should be reported for 2020?
A. 0 C. 500,000
B. 90,000 D. 720,000
215. Orville Company is a dealer in equipment. The entity leased equipment to a lessee on January 1, 2020 for an eight-
year period expiring January 1, 2028. Equal annual payments under the lease are due at the end of each year
beginning December 31, 2020. The lease agreement included a guaranteed residual value of P200,000 and an
implicit rate of 10%. It was determined that the fair value of the asset is P3,000,000, the carrying amount is
P2,500,000 and that the present value of the minimum lease payment at 10% is P2,760,900. The PV of 1 at 10% for
8 periods is 0.467, and the PV of an ordinary annuity of 1 at 10% for 8 periods is 5.335. What is the total financial
revenue over the lease term?
A. 1,379,156 C. 1,498,594
B. 1,439,100 D. 1558,538
216. On January 1, 2020, Yole Company signed a 10-year non-cancelable lease agreement to lease an equipment to
Warehouse Company. The agreement required equal rental payments at the end of each year beginning December
31, 2020. The fair value of the building on January 1, 2020 is P6,000,000 and the carrying amount is P5,000,000. The
equipment has an estimated economic life of 10 years with no residual value. At the termination of the lease, the
title to the building will be transferred to the lessee. The lessee’s incremental borrowing rate is 11%. The lessor
determined the annual rental to insure a 10% rate of return which is known to the lessee. What total amount of
income should the lessor recognize in 2020 if the transaction is treated as sales type?
A. 1,000,000 C. 1,600,000
B. 1,500,000 D. 1,660,000
217. On December 31, 2020, Lane Company sold equipment and simultaneously leased it back for twelve years. Pertinent
information at this date is as follows:
Sales price 480,000
Carrying amount 360,000
Estimated remaining economic life 15 years
On December 31, 2020, what amount should be reported as deferred gain from the sale?
A. 0 C. 112,000
B. 110,000 D. 120,000
218. On January 1, 2020, Halt Company sold a computer system to Finance Company for P5,000,000 and immediately
leased the computer system back. The computer was carried on Halt’s books at a value of P4,400,000. The term of
the non-cancelable lease is 10 years and title will transfer to the lessee at the end of the lease term. The lease
agreement required equal rental payments of P830,000 at the end of each year. The implicit rate is 10%. The
computer has a fair value of P5,000,000 on January 1, 2020, and an estimated economic life of 12 years. Halt
Company paid executor costs of P100,000 for the year. What is the deferred gain on December 31, 2020?
A. 440,000 C. 550,000
B. 540,000 D. 600,000
219. On January 1, 2020, Hook Company sold equipment with a carrying amount of P100,000 and a remaining useful life
of ten years for P150,000. The entity immediately leased the equipment back under a ten-year finance lease with a
present value of P150,000 and will depreciate the equipment using the straight-line method. The entity made the
first annual lease payment of P24,412 in December 2020. On December 31, 2020, what amount should be reported
as unearned gain on equipment sale?
A. 0 C. 45,000
B. 25,588 D. 50,000
36
Income taxes
220. Grim Company reported pretax financial statement income of P200,000 and taxable income of P150,000. The
difference is due to the following:
Interest on municipal bonds 70,000
Premium expense on keyman life insurance (20,000)
Total 50,000
The income tax rate is 30%. What amount should be reported as current provision for income tax expense?
A. 45,000 C. 60,000
B. 51,000 D. 66,000
221. Boom Company reported current tax expense of P5,000,000 for 2021. The changes in assets and liabilities are as
follows:
December 31, 2021 December 31, 2020
Deferred tax asset 1,000,000 800,000
Deferred tax liability 450,000 600,000
Income tax payable 500,000 200,000
The deferred tax liability was caused by accelerated depreciation and the deferred tax asset is for rentals received
in advance. What amount of total tax expense should be recognized in 2021?
A. 4,650,000 C. 5,350,000
B. 4,950,000 D. 5,650,000
222. Justin Company 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
Estimated tax payment for current year 500,000
Enacted corporate income tax rate 30%
What amount of current income tax liability should be reported at year-end?

A. 1,780,000 C. 2,580,000
B. 2,280,000 D. 2880,000
223. On January 1, 2020, Warren Company purchased a P600,000 machine, with a five-year useful life and no residual
value. The machine was depreciated by an accelerated method for book and tax purposes. The carrying amount
was P240,000 on December 31, 2021. On January 1, 2022, the entity changed to the straight-line method for
financial reporting purposes. The income tax rate is 30%. On January 1, 2022, what amount should be reported as
deferred tax liability as a result of the change?
A. 0 C. 72,000
B. 36,000 D. 120,000
224. Tower Company began operations on January 1, 2020. For financial reporting, the entity recognized revenue from
all sales under the accrual method. However, in the income tax return, the entity reported under the installment
method. The gross profit on these installment sales under each method was as follows:
Year Accrual method Installment method

2020 1,600,000 600,000
2021 2,600,000 1,400,000
The income tax rate is 30% for 2020 and future years. There are no other temporary or permanent differences. On
December 31, 2021, what amount should be reported as deferred tax liability?
A. 360,000 C. 660,000
B. 600,000 D. 840,000
225. Kathleen Company prepared the following reconciliation for the first year of operations:
Pretax financial income for 2020 9,000,000

Tax-exempt interest revenue (750,000)
Temporary difference (2,250,000)
Taxable income 6,000,000
37
The temporary difference will reverse evenly in 2021 and 2022 at an enacted tax rate of 35% in 2021, and 32% in
2022. The tax rate for 2020 is 30%. What amount should be reported as deferred tax asset or liability on December
31, 2020?
A. 720,000 asset C. 720,000 liability
B. 753,750 asset D. 753,750 liability
Share-based payments
226. On January 1, 2020, Norren Company granted key executives 160,000 share options at an option price of P35 per
share. Market prices of the shares were P46 and P51 on December 31, 2020 and 2021, respectively. The options
were granted as compensation for services to be rendered over a two-year period beginning January 1, 2020. The
Black-Scholes option pricing model determined total compensation expense to be P1,600,000. What amount of
compensation expense should be recognized for 2021?
A. 800,000 C. 1,760,000
B. 1,600,000 D. 2,800,000
227. In connection with a share option plan, Ward Company intends to distribute treasury shares when the options are
exercised. These shares were bought in 2020 at P42 per share. On January 1, 2021, the entity granted share options
for 10,000 shares at P38 per share as additional compensation for services to be rendered over the next three years.
The options are exercisable during a four-year period beginning January 1, 2024 by grantees still employed. Market
prices was P47 per share at the grant date. The fair value of a similar option with the same terms was P12 at the
grant date. No share options were terminated during 2021. What amount should be reported as compensation
expense pertaining to the options for 2021?
A. 0 C. 40,000
B. 30,000 D. 90,000
228. On January 1, 2020, Morey Company granted the president, 20,000 shares appreciation rights for past services.
Those rights are exercisable immediately and expire on January 1, 2023. On exercise, the grantee is entitled to
receive cash for the excess of the market price on the exercise date over the market price on the grant date. The
grantee did not exercise any of the rights during 2020. The market price of share was P30 on January 1, 2020 and
P45 on December 31, 2020. What amount should be recognized as compensation expense for 2020?
A. 0 C. 300,000
B. 100,000 D. 600,000
229. On January 1, 2020, Mae Company issued to employees 10,000 restricted shares. On January 1, 2021, the entity
issued to employees an additional 20,000 restricted shares.
Date Fair value of share
January 1, 2020 20
December 31, 2020 22
January 1, 2021 25
December 31, 2021 30
The shares vest at the end of a four-year period. There are no forfeitures. What amounts should be recorded as
compensation expense for 2021?
A. 175,000 C. 225,000
B. 205,000 D. 500,000
Shareholder’s equity
230. Zinc Company reported the following information on December 31, 2020:
Ordinary share capital, P3 par 600,000

Share premium 800,000
Treasury shares, at cost 50,000
Net unrealized loss on available-for-sale securities 20,000
Retained earnings appropriately for uninsured earthquake loss 150,000
Retained earnings unappropriated 200,000
What amount should be reported as total shareholder’s equity on December 31, 2020?
A. 1,680,000 C. 1,780,000
B. 1,720,000 D. 1,820,000
231. On January 1, 2020, Alyanna Company had 110,000 shares issued and 100,000 shares outstanding. The entity had
the following transactions in 2020:
38
March 1 Issued 15,000 shares
June 1 Resold 2,500 shares of treasury
September 1 Completed a 2-for-1 share split
What is the number of shares outstanding on December 31, 2020?

A. 117,500 C. 235,000
B. 230,000 D. 250,000
232. Rudd Company had 700,000 ordinary shares authorized and 300,000 shares outstanding on December 31, 2020.
The following events occurred during 2021:
January 31 Declared 10% stock dividend

June 30 Purchased 100,000 shares
August 1 Reissued 50,000
November 30 Declared 2-for-1 stock split
On December 31, 2021, how many ordinary shares are outstanding?

A. 560,000 C. 630,000
B. 600,000 D. 660,000
233. Arp Company reported the following outstanding share capital on December 31, 2020:
• 30,000 preference shares, 5% cumulative, par value P10, fully participating as to dividends. No dividends were
in arrears.
• 200,000 ordinary shares, par value P1
On December 31, 2020, the entity declared dividends of P100,000. What was the amount of dividends payable to
ordinary stockholders?
A. 10,000 C. 40,000
B. 34,000 D. 47,500
234. On December 1, 2020, Nilo Company declared a property dividend of marketable securities to be distributed on
December 31, 2020 to shareholders of record on December 15, 2020. On December 1, 2020, the trading securities
had a carrying amount of P60,000 and a fair value of P78,000. What is the effect of this property dividend on 2020
retained earnings after all nominal accounts are closed?
A. 78,000 decrease C. 0
B. 60,000 decrease D. 18,000 increase
235. Mine Company declared and distributed a 15% share dividends with fair value of P5,000,000 and par value of
P4,000,000 and a 30% share dividend with a fair value of P10,000,000 and par value of P7,000,000. What amount
should be recognized as share premium from share dividend?
A. 0 C. 3,000,000
B. 1,000,000 D. 4,000,000
236. At the current year-end, Danica Company issued 4,000 ordinary shares of P100 par value in connection with a stock
dividend. The market value per share on the sale of declaration was P150. The shareholder’s equity immediately
before issuance of stock dividend comprised share capital P100 par P2,000,000, share premium P3,000,000 and
retained earnings P1,500,000. What amount should be reported as retained earnings immediately after the stock
dividend?
A. 900,000 C. 1,500,000
B. 1,100,000 D. 2,100,000
237. On July 1, 2020, Bart Company had 200,000 ordinary shares of P10 par outstanding, and the market price of the
share is P12. On the same date, the entity declared a 1-for-2 reverse share split. The par of the share was increased
from P10 to P20 and one new P20 par share was issued for each two P10 shares outstanding. Immediately before
the 1-for-2 reverse stock split, the share premium was P450,000. What is the balance of the share premium
account immediately after the reverse stock split is effected?
A. 0 C. 650,000
B. 450,000 D. 850,000
238. Cyan Company issued 20,000 ordinary shares of P5 par at P10 per share. On December 2020, the retained earnings
amounted to P300,000. In March 2021, the entity reacquired 5,000 shares at P20 per share. In June 2021, the entity
sold 1,000 of these shares to corporate officers for P25 per share. The cost method is used to record treasury shares.
Net income for 2021 was P60,000. On December 31, 2021, what amount should be reported as retained earnings?
39
A. 360,000 C. 375,000
B. 365,000 D. 380,000
239. On January 1, 2020, Troy Company reported share capital P20 par P2,000,000, share premium P1,000,000 and
retained earnings P3,500,000. The entity used the cost method of accounting for treasury shares. During 2020, the
entity acquired 20,000 treasury shares for P600,000, sold 15,000 treasury shares at P25 per share and declared the
remaining treasury shares as dividends when the fair value of the shares is P40. Net income for 2020 was
P1,500,000. What amount should be reported as retained earnings on December 31, 2020?
A. 4,725,000 C. 4,800,000
B. 4,775,000 D. 4,925,000
240. Lourdes Company reported that assets decreased by P9,000,000 and liabilities also decreased by P16,000,000 in
the current year. It was determined that a financial asset at FVTOCI decreased by P400,000 due to fair value change
and an investment in associate increased by P600,000 due to share in the net income of the associate. The entity
received equipment valued at P500,000 from a shareholder as donation and corrected prior period error resulting
from an overstatement of ending inventory for P1,500,000. What is the net income for the current year?
A. 6,900,000 C. 8,000,000
B. 7,800,000 D. 8,400,000
241. On December 31, 2020, Eagle Company reported P1,750,000 of appropriated retained earnings for the construction
of a new building which was completed in 2021 at a total cost of P1,500,000. In 2021, the entity appropriated
P1,200,00 of retained earnings for the construction of a new plant. Also, P2,000,000 of cash was restricted for the
retirement of bonds due in 2022. What amount of appropriated retained earnings should be reported on December
31, 2021?
A. 1,200,000 C. 2,950,000
B. 1,450,000 D. 3,200,000
242. Meg Company provided the following information:

• Dividends on 1,000 cumulative preference shares, 6%, P10 par value, have not been declared or paid for three
years.
• Treasury shares that cost P15,000 were reissued for P8,000.
What amount of retained earnings should be appropriated as a result of these items?
A. 0 C. 7,000
B. 1,800 D. 8,800
243. Karen Company provided the following data for the year ended December 31, 2020:
Retained earnings unappropriated, January 1 200,000

Over-depreciation of 2019 due to prior period error 100,000
Net income for 2020 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, 2020?

A. 1,150,000 C. 1,750,000
B. 1,350,000 D. 1,950,000
244. Andrew Company issued 200,000 shares of P5 par value at P10 per share. On January 1, 2020, the retained earnings
amounted to P3,000,000. In March 2020, the entity reacquired 50,000 treasury shares at P20 per share. In June
2020, the entity sold 10,000 of these shares to corporate officers for P25 per share. The entity used the cost method
to record treasury shares. Net income for the year ended December 31, 2020 was P4,000,000 and the entity paid
cash dividends of P1,000,000 on December 31, 2020, what amount should be reported as unappropriated retained
earnings?
A. 5,000,000 C. 5,800,000
B. 5,200,000 D. 6,000,000
40
Earnings per share & book value per share
245. Keshia Company provided the following share transactions for the current year.
January 1 Shares outstanding

February 1 Issued for cash
May 1 Acquired treasury shares
August 1 25% stock dividend
September 1 Resold treasury shares
November 1 Issued 3 for 1 share split
What is the weighted-average number of shares for EPS computation?

A. 103,750 C. 307,500
B. 305,000 D. 311,250
246. Ute Company had the following capital structure during 2020 and 2021:
Preference share, P10 par, 4% cumulative,

25,000 shares issued and outstanding 250,000
Ordinary shares, P5 par, 200,000 shares issued and
outstanding 1,000,000
The entity reported net income of P500,000 for 2021. The entity paid no preference dividends during 2020 and paid
16,000 in preference dividends during 2021. What amount should be reported as basic earnings per share?
A. 2.42 C. 2.48
B. 2.45 D. 2.50
247. On December 31, 2020, Richard Company had 300,000 ordinary shares and 5% 100 par value 10,000 cumulative
preference shares outstanding. No dividends were declared on either the preference or ordinary shares in 2020 or
2021. On January 30, 2022, prior to the issuance of financial statements for 2021, the entity declared a 100% share
dividend on ordinary shares. Net income for 2021 was P950,000. What amount of basic earnings per share should
be reported in the 2021 financial statements?
A. 1.50 C. 3,00
B. 1.58 D. 3.17
248. On December 31, 2020, Donne Company had 1,200,000 ordinary shares outstanding. On September 1, 2021, an
additional 600,000 shares were issued. The entity issued P12,000,000 of 6% convertible bonds on October 1, 2021,
convertible into 800,000 ordinary shares. No bonds were converted in 2021. The net income for 2021 was
P4,500,000 and the income tax rate was 30%. What amount should be reported as diluted earnings per share for
2021?
A. 2.10 C. 2,89
B. 2.27 D. 3.21
249. Peter Company reported the following capital structure:

2020 2021
Outstanding shares:
Ordinary shares 110,000 110,000
Convertible preference shares 10,000 10,000
During 2021, the entity paid preference dividends of P3 per share. The preference are convertible into 20,000
ordinary shares. Net income for 2021 was P850,000. The income tax rate is 30%. What amount should be reported
as diluted earnings per share for 2021?
A. 6.31 C. 7.08
B. 6.54 D. 7.45
250. Hoyt Company reported the following shareholders’ equity:
5% cumulative preference shares, par value P100,

2,500 shares issued and outstanding 250,000
Ordinary shares, par value P3.50, 100,000 shares issue
and outstanding 350,000
Share premium 125,000
Retained earnings 300,000
41
Dividends in arrears on the preference shares amount to P25,000. If the entity were to be liquidated, the preference
shareholders would receive par value plus a premium of P50,000. What is the book value per ordinary share?
A. 7.00 C. 7.50
B. 7.25 D. 7.75
Quasi-reorganization
251. Kevin Company sustained heavy losses for several years and underwent quasi-reorganization via recapitalization on
December 31, 2020. The entity provided the following information:
Fair value Carrying amount
Inventory 5,700,000 6,000,000
Equipment 7,200,000 8,000,000
The share capital is P6,000,000 with a P6 par value, share premium is P1,500,000 and the deficit is P6,200,000 before
the adjustments. The par value is reduced by 1/3 of the original amount. What amount must the shareholders
contribute in order to eliminate the deficit?
A. 0 C. 3,800,000
B. 1,800,000 D. 6,200,000
Revenue recognition
252. France Company had sales of P1,000,000 during December 2020. Experience has shown that merchandise equaling
7% of sales will be returned within thirty days and an additional 3% will be returned within ninety days. Returned
merchandise is readily resalable. In addition, merchandise equaling 15% of sales will be exchanged for merchandise
of equal or greater value. What amount should be reported for net sales for the month of December 2020?
A. 750,000 C. 850,000
B. 780,000 D. 900,000
253. Zoe Company, a distributor of machinery, bought a machine from the manufacturer in November 2020 for P10,000.
On December 30, 2020, the entity sold this machine for P15,000 under the following terms: 2% discount if paid
within thirty days, 1% discount if paid after thirty days but within sixty days, or payable in full within ninety days if
not paid within the discount periods. However, the customer had the right to return this machine if it was unable
to resell the machine before expiration of the ninety-day payment period, in which case the obligation would be
canceled. In the net sales for the year ended December 31, 2020, what amount should be included for the sale of
this machine.
A. 0 C. 14,850
B. 14,700 D. 15,000
254. Belgica Company allows customers to return goods within 90 days of purchase. The entity estimated that 5% of
sales will be returned within the 90-day period. During the month, the entity has sales of P200,000 and return of
sales made in prior months of P5,000. What amount should be recorded as net sales revenue for new sales made
during the month?
A. 185,000 C. 195,000
B. 190,000 D. 200,000
255. Charlene Farms produced 50,000 kilos of tobacco for another entity which has agreed to purchase the entire
production at the prevailing market price. Recent legislation assured that the market price will not fall below P70
per kilo during the next two years. The costs of selling and distributing the tobacco are immaterial and can be
reasonably estimated. The entity reported its inventory at expected exit value. During 2020, the entity sold and
delivered to the buyer 40,000 kilos at the market price of P70. The entity sold the remaining 10,000 kilos during
2021 at the market price of P72. What amount of revenue should be recognized in 2020?
A. 2,800,000 C. 3,500,000
B. 2,880,000 D. 3,600,000
256. On October 20, 2020, Grimm Co. consigned forty freezers to a consignee for sale at P10,000 each and paid P8,000
in transportation cost. On December 30, 2020, the consignee reported the sale of ten freezers and remitted
P85,000. The remittance was net of the agreed 15% commission. What amount should be recognized as
consignment sales revenue for 2020?
A. 77,000 C. 98,000
B. 85,000 D. 100,000
257. On December 31, 2020, Alt Company received 505 sweaters on consignment from a consignor. The cost for the
sweaters was P800 each and were priced to sell at P1,000. The commission on consigned goods is 10%. On
December 31, 2020, five sweaters remained. On December 31, 2020, what amount should be reported as payable
for consigned goods?
A. 404,000 C. 454,400
42
B. 450,000 D. 490,000
258. During 2020, Super Company sold a comic strip to Fantasy Company and will received royalties of 20% of future
revenue associated with the comic strip. On December 31, 2020, Super reported royalties’ receivable of P75,000
from Fantasy. During 2021, Super received royalty payments of P200,000. Fantasy reported revenue of P1,500,000
in 2021 from the comic strip. What amount should Super report as royalty revenue in 2021?
A. 125,000 C. 200,000
B. 175,000 D. 300,000
259. Joanna Company had a trademark that was licensed to Marie Company for royalties of 15% of sales of the
trademarked items. Royalties are payable semi-annually on March 15 for sales in July through December of the
prior year, and on September 15 for sales in January through June of the current year. The entity received royalties
of P1,000,000 and P1,200,000 on March 15, 2020 and March 15, 2021, respectively and P1,500,000 and P1,700,000
on September 15, 2020 and September 15, 2021, respectively. The license estimated that sales of the trademarked
items would total P6,000,000 for July through December 2021. What amount of royalty revenue should be reported
in 2021?
A. 2,600,000 C. 3,800,000
B. 2,900,000 D. 4,100,000
260. Rill Company owns a 20% royalty interest in an oil well. The entity receives royalty payments on January 1, for the
oil sold between the previous June 1 and November 30, and on July 31 for oil sold between December 1 and May
31. Production report show the followings oil sales:
June 1, 2020 – November 30, 2020 300,000

December 1, 2020 – December 31, 2020 50,000
December 1, 2020 – May 31, 2021 400,000
June 1, 2021 – November 30, 2021 325,000
December 1, 2021 – December 31, 2021 70,000
What amount should be reported as royalty revenue for 2021?

A. 140,000 C. 149,000
B. 144,000 D. 159,000
Expense recognition
261. Clark Company reported advertising expense of P146,000 on December 31, 2020 before any necessary year-end
adjustment relating to the following:
• Included in the P146,000 is the P15,000 of printing catalogs for a sales promotional campaign in January 2021.
• Radio advertisements broadcast during December 2020 were billed to Clark on January 2, 2021. Clark paid the
P9,000 invoice on January 11, 2021.
What amount should be reported as advertising expense for 2020?

A. 122,000 C. 140,000
B. 131,000 D. 155,000
262. On December 31, 2020, Alvin Company had a P4,950,000 balance in the advertising expense account before any
year-end adjustments.
• Radio and television advertising spots broadcast during December 2020 were billed to Alvin on January 4, 2021.
The invoice cost of P250,000 was paid on January 15, 2021.
• Included in the P4,950,000 is P300,000 for newspaper advertising for a January 2021 sales promotional
campaign.
What amount should be reported as advertising expense for 2020?

A. 4,650,000 C. 5,000,000
B. 4,900,000 D. 5,200,000
263. Rea Company had a balance of P4,100,000 in the professional fees expense account on December 31, 2020, before
considering year-end adjustments relating to the following:
• Consultants were hired for a special project at a total fee not to exceed P3,250,000. The entity had recorded
P2,750,000 of this fee based on billings for work performed in 2020.
43
• The attorney’s letter requested by the auditors dated January 31, 2021, indicated that legal fees of P300,000
were billed on January 15, 2021 for work performed in November 2020, and unbilled fees for December 2020
were P350,000.
What amount should be reported for professional fees expense for 2020?
A. 4,100,000 C. 4,750,000
B. 4,400,000 D. 5,250,000
Accounting changes & accounting errors

264. On January 1, 2020, Gamma Company changed the inventory method from weighted average to FIFO for both
financial and income tax reporting. The change resulted in a P600,000 increase in the January 1, 2020 inventory
balance. The income tax rate is 30%. What is included in the journal entry to effect the accounting change?
A. Debit income tax payable P180,000 C. Credit income tax payable P180,000
B. Debit inventory P420,000 D. Credit retained earnings P600,000
265. Jeric Company purchased machinery on January 1, 2020 for P6,300,000. The entity used the sum of years’ digits
method with no residual value to depreciate the asset for the first two years of the estimated six-year life. In 2022,
the entity changed to the straight-line depreciation method. The depreciation recorded under sum of years’ digits
method totaled P1,800,000 for 2020 and P1,500,000 for 2021. The depreciation under straight-line method would
have been P1,050,000 each for 2020 and 2021. The tax rate is 30%. What is the cumulative effect of this change as
an adjustment of retained earnings on January 1, 2022?
A. 0 C. 1,200,000
B. 840,000 D. 1,350,000
266. During 2020, Patrick Company changed from the cost recovery method to the percentage of completion method.
The tax rate is 30%. Gross profit figures are as follows:
2018 2019 2020

Cost recovery method 3,800,000 5,000,000 5,600,000
Percentage of completion method 6,400,000 7,600,000 8,400,000
How should this accounting change to be reported in 2020?

A. 3,640,000 increase in profit or loss
B. 5,600,000 increase in profit or loss
C. 3,640, 000 increase in retained earnings
D. 5,600,000 increase in retained earnings
267. On January 31, 2021, Air Company agreed to pay the former president P300,000 under a deferred compensation
arrangement. Air should have recorded this expense in 2020 but did not do so. The income tax expense would have
been P70,000 lower in 2020 had it properly accrued this deferred compensation. What is the adjustment of retained
earnings on January 1, 2021?
A. 230,000 debit C. 230,000 credit
B. 370,000 debit D. 300,000 credit
268. Rowelma Company reported the following during the year ended December 31, 2020
• It was decided to write off P1,000,000 from inventory as it was obsolete.

• Sales of P1,500,000 had been omitted from the financial statements for 2019.
What amount should be reported as prior period error in the financial statement for 2020?
A. 500,000 C. 1,500,000
B. 1,000,000 D. 2,500,000
Other comprehensive basis of accounting

269. Greg Company reported revenue of P1,250,000 in the accrual basis income statement for the year ended June 30,
2021.
Accounts receivable, June 30, 2020 400,000
Accounts receivable, June 30, 2021 530,000
Uncollectible accounts written off during the fiscal year 15,000
Under the cash basis, what amount should be reported as revenue?

A. 835,000 C. 1,105,000
B. 850,000 D. 1,135,000
44
270. Czarina Company provided the following information during the first year of operations:
Purchase on account 6,200,000
Ending inventory 2,200,000
Sales on account 5,600,000
Accounts receivable and accounts payable have ending balances at year-end of P1,400,000 and P1,200,000
respectively. Other expenses paid amounted to P1,000,000 during the year and equipment with a 5-year useful life
was purchased for P600,000 during the year. The accounting policy is full year depreciation in the year of purchase
using a straight-line. What is the net income under cash basis of accounting?
A. 280,000 C. 400,000
B. 340,000 D. 480,000
Constructive accounting
271. In the 2021 financial statement, Cris company reported interest expense of P85,000 in the income statement and
cash paid for interest of P68,000 in the statement of cash flows. There was no prepaid interest or interest
capitalization either at the beginning or end of 2021. Accrued interest on December 31, 2020 was P15,000. What
amount should be reported as accrued interest payable on December 31, 2021?
A. 2,000 C. 17,000
B. 15,000 D. 32,000
272. Cooke Company acquired patent rights from other entities. The following data are available at year-end:
2020 2021
Prepaid royalties 55,000 45,000
Royalties payable 80,000 75,000
During 2021, the entity remitted royalties of P300,000. What amount should be reported as royalty expense for
2021?
A. 295,000 C. 310,000
B. 305,000 D. 330,000
273. Ina Company had the following beginning and ending balances in prepaid expenses and accrued liabilities for the
current year:
Prepaid expenses Accrued liabilities
Beginning balance 5,000 8,000
Ending balance 10,000 20,000
Debits to operating expenses totaled P100,000. What amount was paid for operating expenses during the current
year?
A. 83,000 C. 107,000
B. 93,000 D. 117,000
Current cost accounting

274. Richard Company disclosed supplemental information on the effects of changing prices. The entity computed the
increase in current cost of inventory as follows:
Increase in current cost (nominal peso) 1,500,000

Increase in current cost (constant peso) 1,200,000
What amount should be disclosed as the inflation component of the increase in current cost?
A. 300,000 C. 1,500,000
B. 1,200,000 D. 2,700,000
275. On December 31, 2020, Kim Company owned two assets as follows:
Equipment Inventory
Current Cost 100,000 80,000
Recoverable amount 95,000 90,000
The entity voluntary disclosed supplementary information about current cost on December 31, 2020. In such a
disclosure, what amount should be reported as total assets?
A. 175,000 C. 185,000
B. 180,000 D. 190,000
45
276. On December 30, 2020, Future Company paid P2,000,000 for land. On December 31, 2020, the current value of the
land was P2,200,00. In January 2021, the land was sold for P2,250,000. Ignoring income tax, by what amount should
shareholder’s equity be increased for 2020 and 2021 in current value financial statements?
A B C D
2020 0 0 200,000 200,000
2021 50,000 250,000 0 50,000
Hyperinflationary environment
277. David Company reported the following machinery on December 31, 2020:
Cost Accumulated depreciation
Acquired in December 2017 4,000,000 1,600,000
Acquired in December 2019 1,000,000 200,000
Index numbers at the end of each year are 120 for 2017, 125 for 2019, and 350 for 2020. What should be reported
in a hyperinflationary statement of financial position prepared on December 31, 2020 as the carrying amount of the
machinery?
A. 3,200,000 C. 8,960,000
B. 7,800,000 D. 9,240,000
TEST BANK FINANCIAL ACCOUNTING and REPORTING
1. B 36. A 71. A 106. B 141. B 176. A 211. B 246. B

2. C 37. B 72. A 107. C 142. B 177. C 212. C 247. A
3. A 38. B 73. A 108. B 143. B 178. C 213. B 248. C
4. C 39. C 74. A 109. A 144. C 179. B 214. C 249. B
5. A 40. C 75. C 110. B 145. C 180. A 215. B 250. A
6. B 41. A 76. A 111. A 146. C 181. D 216. C 251. C
7. B 42. C 77. B 112. D 147. B 182. D 217. D 252. D
8. C 43. A 78. A 113. C 148. B 183. D 218. B 253. A
9. D 44. B 79. D 114. B 149. B 184. C 219. C 254. B
10. A 45. B 80. A 115. B 150. C 185. B 220. A 255. C
11. D 46. C 81. C 116. C 151. D 186. C 221. A 256. D
12. C 47. A 82. B 117. C 152. B 187. B 222. A 257. B
13. B 48. A 83. D 118. A 153. C 188. B 223. A 258. D
14. A 49. A 84. B 119. A 154. B 189. C 224. C 259. A
15. B 50. A 85. B 120. C 155. B 190. B 225. D 260. C
16. D 51. A 86. B 121. C 156. C 191. A 226. A 261. C
17. C 52. B 87. C 122. D 157. C 192. D 227. C 262. B
18. B 53. B 88. B 123. B 158. D 193. C 228. C 263. C
19. A 54. C 89. C 124. A 159. D 194. D 229. A 264. C
20. B 55. C 90. C 125. C 160. D 195. D 230. A 265. A
21. B 56. C 91. B 126. C 161. B 196. D 231. C 266. C
22. C 57. D 92. D 127. B 162. D 197. B 232. A 267. A
23. B 58. B 93. A 128. C 163. B 198. D 233. A 268. C
24. C 59. C 94. C 129. D 164. C 199. C 234. B 269. C
25. A 60. C 95. C 130. C 165. A 200. B 235. B 270. A
26. A 61. B 96. A 131. A 166. C 201. C 236. B 271. D
27. B 62. A 97. D 132. B 167. C 202. B 237. B 272. B
28. B 63. A 98. C 133. B 168. B 203. C 238. A 273. B
29. D 64. C 99. D 134. B 169. A 204. D 239. B 274. A
30. B 65. A 100. A 135. C 170. D 205. C 240. D 275. A
31. C 66. D 101. C 136. D 171. A 206. B 241. A 276. D
32. B 67. C 102. C 137. B 172. B 207. B 242. A 277. D
33. C 68. C 103. B 138. B 173. A 208. B 243. B
34. C 69. D 104. A 139. B 174. A 209. A 244. B
35. C 70. A 105. B 140. B 175. C 210. C 245. B
46

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TEST BANK

FINANCIAL ACCOUNTING and REPORTING

The accounts receivable consisted of the following items:

3. Omar Company presented the following information on December 31, 2020:

Cash in general checking account 660,000

Questions 4 thru 6 are based on the following information.

Prepaid taxes 450,000

Earnings from long-term contracts 6,680,000

4. Total current assets?

Net sales revenue 2,000,000

What is the cost of goods available for sale?

Net remeasurement loss on defined benefit plan 300,000

What is the comprehensive income for the current year?

Unrealized loss on futures contract designated as cash 500,000

What is the increase in cash flows provided by financing activities?

Questions 25 thru 29 are based on the following information:

Allowable for doubtful accounts 1,300 1,100

25. Cash collected from customers?

Questions 30 thru 32 are based on the following information.

Segment Revenue Operating Profit Assets

How many reportable segments does Correy have?

Cash and cash equivalents

Cash in bank 5,200,000

Cash in bank 2,250,000

Balance per bank 9,800,000

Balance per bank statement 3/31/2020 46,500

Date per bank for the month of April 2020 follow:

Balance per bank 9,800,000

Accounts receivable on January 650,000

Allowance for uncollectible accounts – 1/1/2020 30,000

What is the uncollectible accounts expense for the current year?

Allowance for doubtful accounts, January 1 2,500,000

What is the year-end adjustment to the allowance for doubtful accounts?

0-60 days outstanding 6,000,000 5% uncollectible

Age Amount Collectible

Trade accounts receivable 930,000

52. Meredith Company provided the following information:

0-15 days 5,000,000 100%

What amount should be reported as net realizable value of accounts receivable?

On December 31, 2020, what amount should be reported as note receivable?

By what amount should the inventory be reduced?

What amount should be reported as inventory on December 31, 2020?

• Merchandise of P600,000 is held on consignment by Tones.

What is the correct amount of inventory on December 31, 2020?

Inventory, January 1 1,500,000

What amount should be reported as inventory at year-end?

What amount should be reported as inventory at LCNRV?

Acquisition cost, January 1, 2020 8,000,000

Carrying amount of biological assets on January 1 5,000,000

What is the carrying amount of biological asset at year-end?

Investment in debt & equity securities

Future value of 1 at 10% for 4 periods 1.46

What is the annual deposit to the fund (rounded)?

84. Shelton Company reported the following portfolio of available-for-sale securities:

Aggregate cost, 12/31/2020 150,000

Derivatives & hedging

Questions 107 thru 109 are based on the following information.

Cash proceeds 2,100

107. What is the gain (loss) on the sale?