Junior Philippine Institute of Accountants – Bulacan State University

Mock Qualifying Examination – Level 1

Basic Financial Accounting and Reporting

1. The following are considered asset accounts except

A. Accounts receivable
B. Prepaid expenses
C. Accrued expenses
D. Office Equipment

2. Merchandise inventory becomes part of the cost of goods sold when an entity

A. pays for the inventory.

B. purchases the inventory.
C. receives payment from the customer.
D. sells the inventory.

3. Which of the following costs is present in both prime costs and conversion costs?

A. Factory overhead
B. Direct materials
C. Direct labor
D. Interest expense

4. Which of the following statements is incorrect?

A. Deferrals recorded using the revenue and expense method can be reversed.
B. Adjusting entries should include one nominal and one real account.
C. Sales account can be closed by debiting income summary and crediting sales.
D. Post-closing trial balance only consists of real accounts.

(For Questions 5-6) Manalo Company provides the following information:

Increase in merchandise P130,000

inventory
Sales 2,000,000
Transportation in 50,000
Transportation out 35,000
Gross profit rate 20% based on sales

5. What amount should be recorded as purchases during the year?

A. P1,680,000
B. P1,715,000
C. P1,420,000
D. P1,385,000
6. How much is the cost of goods sold?

A. P1,600,000
B. P1,666,667
C. P1,730,000
D. P1,780,000

7. Kargador Company provided the following information for 2022:

12/31/2021 12/31/2022
Total assets P1,800,000 P2,500,000
Total liabilities 1,500,000 700,000
Withdrawals during 2022 250,000
Additional investments 400,000
during 2022

How much is the net income for 2022?

A. P1,100,000
B. P1,350,000
C. P850,000
D. Cannot be determined by the given information.

8. On September 8, 2022, Aldaba Company paid cash amounting to P1,200,500 to Alba

Company for the goods purchased on September 1, 2022. The credit terms were 2/10,
n/30. Aldaba was also granted a trade discount of 30%. How much is the list price of the
goods purchased on September 1, 2022?

A. P1,225,000
B. P1,715,000
C. P1,525,000
D. P1,750,000

9. Bermudez Triangle Company has total assets amounting to P5,500,000 and total equity
of P3,500,000. How much are Bermudez Triangle’s total liabilities and equity?

A. P2,000,000
B. P5,500,000
C. P3,500,000
D. P9,000,000

10. Antonio Company had the following transactions during 2022.

 Sales of P4,500 on account

 Collected P2,000 for services to be performed in 2023
 Paid P625 cash in salaries
 Purchased airline tickets for P250 in December for a trip to take place in 2023

How much is the net income for 2022 under accrual accounting?
 A. P3,875
B. P5,875
C. P5,625
D. P3,625

11. Before any adjusting entries, the prepaid insurance initially recognized using the asset
method will have an effect of

I. Overstatement of prepaid insurance

II. Understatement of prepaid insurance
III. Overstatement of insurance expense
IV. Understatement of insurance expense

A. I, III
B. II, III
C. II, IV
D. I, IV

12. In a worksheet for a merchandising company, Merchandise Inventory would appear in the

A. trial balance and adjusted trial balance columns only.

B. trial balance and balance sheet columns only.
C. trial balance, adjusted trial balance, and balance sheet columns.
D. trial balance, adjusted trial balance, and income statement columns.

(For Questions 13 – 16) The following information was determined from the books of Alindogan
Company:

12/31/2021 12/31/2022
Accounts receivable 120,000 240,000
Accounts payable 500,000 300,000
Net purchases during 2022 120% of cost of goods sold
Net sales during 2022 3,000,000
Gross profit rate on sales 40%
Operating expenses 400,000
Income tax rate 25%

13. How much cash was paid to suppliers during 2022?

A. P1,960,000
B. P2,000,000
C. P2,360,000
D. P2,660,000

14. How much cash was collected from credit customers during 2022?

A. P2,880,000
B. P3,120,000
C. P3,240,000
D. P2,760,000
15. How much is the income tax expense for 2022?

A. P120,000
B. P180,000
C. P240,000
D. P360,000

16. How much is the net income after taxes for 2022?

A. P680,000
B. P560,000
C. P620,000
D. P440,000

17. These costs are considered product costs except

A. Depreciation of factory building

B. Property taxes of factory building
C. Salary of the company president
D. Labor of factory workers

18. Cervantes Company has a beginning inventory of ₱140,000. During the period, Cervantes
purchased inventories costing ₱790,000. Freight paid on the purchase totaled ₱10,000.
The ending inventory was ₱60,000. Gross sales were ₱1,800,000 while sales returns and
discounts totaled ₱220,000. How much is the gross profit?

A. 680,000
B. 700,000
C. 780,000
D. 880,000

19. Javier Company reported the checkbook balance on December 31, 2022, at P8,000,000.
In addition, the entity held the following items in the safe on that date:

Check payable to the entity, dated January 2, 2023, in 1,000,000

payment of a sale, not included in the December
checkbook balance
Check payable to the entity, deposited December 15 3,000,000
and included in December 31 checkbook balance, but
returned by the bank on December 30 stamped “NSF”.
The check was redeposited on January 2, 2023, and
cleared on January 5, 2023
Check drawn on the entity’s account, dated and 2,500,000
recorded on December 31, 2022, but not mailed until
January 15, 2023
Coins and currencies on hand 800,000
Three-month money market instruments 1,500,000

What is the correct amount of “cash” on December 31, 2022?

A. 7,500,000
 B. 9,300,000
C. 8,300,000
D. 9,800,000

20. A trial balance may prove that debits and credits are equal but

A. An amount could’ve been entered into a wrong account

B. A transaction could’ve been entered twice
C. A transaction could’ve been omitted
D. All of these

(For Questions 21 – 22) Revillame Company received from a customer a one-year, P500,000
note bearing annual interest of 8%. After holding the note for six months, the entity discounted
the note at the bank at an effective interest rate of 10%.

21. What amount of cash was received from the bank?

A. 540,000
B. 523,810
C. 513,000
D. 495,238

22. What is the loss on note receivable discounting?

A. 20,000
B. 13,000
C. 7,000
D. 0

23. Under this shipping term, the goods in transit are the property of the buyer but the seller
is the one who actually paid the freight charge.

A. FOB Destination, freight collect

B. FOB Destination, freight prepaid
C. FOB Shipping point, freight collect
D. FOB Shipping point, freight prepaid

24. During the first year of operations, an entity recorded all purchases of supplies as assets.
Supplies in the amount of P2,000,000 were purchased. Actual year-end supplies unused
amounted to P500,000. What is the impact of the adjusting entry on supplies?

A. Increase in net income P1,500,000

B. Increase in expenses P1,500,000
C. Decrease in assets P500,000
D. Decrease in expenses P500,000

25. Which of the following accounts is absent in a perpetual inventory system?

A. Sales discounts
B. Sales returns and allowances
 C. Cost of goods sold
D. Cash

(For Questions 26 – 30) Vicencio Company is a wholesale supplier of calculators. Vicencio

provided the following information for the month of June:

Units Cost per unit

Beginning inventory 200 P60
June 3 purchase 2,000 62
June 5 purchase 750 64.50
June 11 sale 1,500
June 19 purchase 400 63
June 24 sale 1,700
June 27 purchase 1,000 65
June 28 purchase 400 62
June 29 sale 1,300

26. Assuming that the company uses the First-in-first-out (FIFO) method, how much is the
ending inventory as of June 30?

A. P15,000.00
B. P15,757.00
C. P15,500.50
D. P15,500.00

27. Assuming that the company uses the weighted-average method, how much is the ending
inventory as of June 30?

A. P15,000.50
B. P15,757.50
C. P15,757.00
D. P15,500.00

28. Using the weighted-average method, how much is the weighted-average cost per unit of
the inventories?

A. P60.50
B. P63.03
C. P63.16
D. P65.80

29. Assuming that the company uses the First-in-first-out (FIFO) method, how much is the
cost of goods sold for the month of June?

A. P283,875.00
B. P288,375.00
C. P299,375.00
D. P299,735.00

30. Assuming that the company uses the weighted-average method, how much is the cost of
goods sold for the month of June?
 A. P283,671.50
B. P283,615.70
C. P299,375.00
D. P283,617.50

Partnership and Corporation

(For Questions 1 – 2) The capital balances of Celine and Daniel are provided below:

Celine, Capital 600,000

Daniel, Capital 400,000

Celine and Daniel agreed to form a partnership contributing their respective assets and liabilities
subject to the following adjustments:

 The inventory balance of Celine will be written down by P20,000.

 Celine’s building has a related mortgage amounting to P40,000, which will be assumed
by the partnership.
 2% of Celine and Daniel’s respective accounts receivable balances are uncollectible. Their
accounts receivable balance is 5 times their respective capital balances before the
aforementioned adjustments.

1. How much are the respective capital balances of Celine and Daniel after the formation of
the partnership?

A. Celine: P520,000; Daniel P360,000

B. Celine: P480,000; Daniel P360,000
C. Celine: P440,000; Daniel P320,000
D. Celine: P480,000; Daniel P320,000

2. Assuming that the mortgage will be assumed personally by Celine, how much will the total
capital balances of the new partnership?

A. P840,000
B. P880,000
C. P920,000
D. P960,000

3. Which of the following statements is incorrect regarding partnership formation?

A. The SEC shall not register any corporation organized for the practice of public
accountancy.
B. A contract of partnership is valid whenever immovable property or real rights
are contributed and a signed inventory of the said property is not made and
attached to a public instrument.
C. The provision for arbitration of disputes, dissolution, and liquidation may be contained
in the Articles of Partnership.
D. The fair market value of an asset is the estimated amount that a willing seller would
receive from a financially capable buyer for the sale of the asset in a free market.
(For Questions 4 – 6) Figueroa and Mahinay formed a partnership. The following are their
contributions:

Figueroa Mahinay
Cash 250,000 1,800,000
Accounts receivable 430,000 1,000,000
Land 1,250,000
Building 2,000,000
Accounts payable 330,000 400,000
Notes payable 500,000
Capital 3,600,000 1,900,000

Additional information:

 The cash contribution of Figueroa as listed above is the peso equivalent of $6,250. The
current exchange rate is P45: $1.
 Mahinay’s accounts receivable should be written down by P200,000.
 The land has an appraised value of P1,500,000.
 The building has an appraised value of P1,400,000.
 Attached to the building is an unpaid mortgage of P800,000. Figueroa agrees to settle this
mortgage immediately using her personal funds.
 On the other hand, Figueroa’s properties have unpaid real property taxes amounting to
P40,000. Both partners agreed that the partnership shall assume those obligations.

4. How much are the total capital balances after the formation of the partnership?

A. P4,941,250
B. P5,500,000
C. P4,981,000
D. P4,341,250

5. How much is the adjusted capital balance of Figueroa?

A. P2,641,250
B. P3,241,250
C. P3,281,000
D. P3,800,000

6. Assuming that after applying the necessary adjustments, the partners agreed to equalize
their interests. Which partner shall receive cash payment from the other partner and what
amount?

A. Figueroa will receive from Mahinay an amount of P770,625.

B. Mahinay will receive from Figueroa an amount of P770,625.
C. Figueroa will receive from Mahinay an amount of P707,625.
D. Mahinay will receive from Figueroa an amount of P707,625.

7. How should the partners in a business partnership share in the profits or losses of the
partnership?
 A. Equally
B. At whatever basis of allocation that the dominating partner deems reasonable.
C. In accordance with the partnership agreement.
D. Based on “nanay, tatay, gusto kong tinapay”, ang magkamali, walang share sa
partnership.

8. Alonzo, Bartolome, and Certeza are partners with average capital balances during 2020
of ₱120,000, ₱60,000, and ₱40,000, respectively. Partners receive 10% interest on their
average capital balances. After deducting salaries of ₱30,000 to Alonzo and ₱20,000 to
Certeza, the residual profit or loss is divided equally. In 2020, the partnership sustained a
₱33,000 loss before interest and salaries to partners. By what amount should Alonzo’s
capital account change?

A. 7,000 increase.
B. 11,000 decrease.
C. 35,000 decrease.
D. 42,000 increase.

(For Questions 9-10) On July 1, 2022, Daniella and Jason formed DJ Partnership with an initial
investment of P1M and P2M, respectively. Daniella is appointed as the managing partner.

The articles of co-partnership provide that profit or loss shall be distributed accordingly:

 30% interest on original capital contribution ratio.

 Monthly salary of P20,000 and P10,000 respectively for Daniella and Jason.
 Daniella shall be entitled to a bonus equivalent to 20% of net income after interest,
salaries, and bonus.
 The remainder shall be distributed in the ratio of 3:2 for Daniella and Jason respectively.

For the year ended December 31, 2022, the partnership reported net income of P750,000.

9. What is the share in net income of Daniella for the year ended December 31, 2022?

A. 400,000
B. 250,000
C. 350,000
D. 500,000

10. How much is the capital balance of Jason for the year ended December 31, 2022?

A. 2,300,000
B. 2,350,000
C. 2,400,000
D. 2,500,000

11. The admission of a new partner effected through purchase of interest from (an) existing
partner(s) is

A. Recorded in the partnership’s books as a debit to cash or other asset and credit to the
incoming partner’s capital account.
 B. Recorded in the partnership’s books as a transfer within equity.
C. Recorded in the partnership’s books as a transfer from equity to liability.
D. Not recorded in its entirety.

12. In case of admission of a new partner in an existing partnership through investment to the
partnership, which of the following scenario will result in a bonus to the new partner and
asset revaluation?

A. The total contributed capital of all partners is equal to the total agreed capital of the
new partnership while the agreed capital of the new partner is higher than the amount
he has contributed.
B. The total contributed capital of all partners is more than the total agreed capital of new
partnership while the agreed capital of new partner is lower than the amount he has
contributed.
C. The total contributed capital of all partners is less than the total agreed capital
of new partnership while the agreed capital of new partner is higher than the
amount he has contributed.
D. The total contributed capital of all partners is more than the total agreed capital of new
partnership while the total agreed capital of old partners is equal to the amount they
contributed.

(For Questions 13-15) Lazaro joins the partnership of Encinas and Yasis. The partnership’s
statement of financial position before Lazaro’s admission is as follows:

Cash 30,000 Accounts payable 80,000

Accounts receivable 140,000 Encinas, Capital (60%) 515,000
Inventory 200,000 Yasis, Capital (40%) 275,000
Equipment 500,000
Total assets 870,000 Total liabilities and equity 870,000

The following adjustments are determined:

a. The recoverable amount of the accounts receivable is P120,000.
b. The inventory has a net realizable value of P160,000.
c. The equipment has a fair value of P450,000.
d. Unrecorded liabilities amount to P20,000.

13. Lazaro acquires half of Yasis’ capital interest for P800,000. How much will be Encinas’
capital balance after Lazaro’s admission?

A. P515,000
B. P330,000
C. P437,000
D. P548,500

14. Assuming that on the other hand, Lazaro purchases 25% of Encinas’ and Yasis’ capital
interests for P195,000. How much will be the new capital balances of all the partners after
Lazaro’s admission?

A. Encinas: P386,250; Yasis: P167,250; Lazaro: P316,500

B. Encinas: P327,750; Yasis: P206,250; Lazaro: P336,000
C. Encinas: P386,250; Yasis: P206,250; Lazaro: P277,500
 D. Encinas: P327,750; Yasis: P167,250; Lazaro: P165,000

15. Assuming that instead of directly purchasing the capital interests of the old partners,
Lazaro invests P180,000 for a 20% interest in the net assets and profits of the partnership.
How much will be Yasis’ capital balance after Lazaro’s admission?

A. P215,800
B. P218,200
C. P227,800
D. P230,200

(For Questions 16-17) Bacarra, Dela Cruz, and Vasallo had the following capital balances on
January 1, 2022: Bacarra, Capital (50%) P320,000; Dela Cruz, Capital (30%) P192,000; and
Vasallo, Capital (20%) P128,000. Bacarra decided to retire on September 1, 2022. The
partnership earned profit of P800,000 from January 1 to August 31, 2022 and the partners had
the following capital withdrawals during the period: Bacarra, P40,000; Dela Cruz, P60,000; and
Vasallo, P30,000.

16. Dela Cruz purchases Bacarra’s interest for P700,000. How much will be the total capital
balances of the remaining partners after Bacarra’s retirement?

A. P610,000
B. P1,310,000
C. P630,000
D. P1,330,000

17. Assuming that the partnership pays Bacarra P700,000 for her capital interest, how much
will be the capital balance of Vasallo after Bacarra’s retirement?

A. P246,000
B. P250,000
C. P360,000
D. P364,000

18. Salonga and Magdaraog are partners of SM Co., which is undergoing liquidation. After
SM Co.’s assets were realized and its liabilities settled, Salonga’s capital account has a
negative balance. Which of the following statements is correct?

A. Magdaraog shall absorb Salonga’s capital deficiency if Salonga is solvent.

B. Salonga shall make an additional contribution if Salonga is insolvent.
C. Salonga and Magdaraog shall make pro rata contributions to eliminate Salonga’s
capital deficiency.
D. Magdaraog shall absorb Salonga’s capital deficiency if Salonga is insolvent.

19. When making safe payments to the partners during installment liquidation of a partnership,
which of the following statements is correct?

A. A cash priority program can be used; however, this program can only be prepared
after the first instalment sale of assets.
B. The carrying amount of unsold assets and any cash retention for future costs
are treated as loss.
 C. A safe payment to the partners can only be made until after all the assets were
realized.
D. A safe payment to the partners can only be made until after all the liabilities were
actually settled even if sufficient cash is retained for such payment.

(For Questions 20-21) On January 1, 2022, the partners of BioGo Orgiene Co. decided to liquidate
their partnership. The partnership’s statement of financial position is provided below:

Cash 20,000 Accounts payable 30,000

Non-cash assets 480,000 Loan payable - Fabrigaras 20,000
Bautista, Capital (20%) 100,000
Fabrigaras, Capital (30%) 150,000
Salvador, Capital (50%) 200,000
Total assets 500,000 Total liabilities and equity 500,000

Information on the conversion of non-cash assets is as follows:

a. The non-cash assets were sold for P370,000.
b. P2,000 liquidation expenses were paid.

20. What is the amount received by Fabrigaras at the end of liquidation?

A. P77,600
B. P136,400
C. P144,000
D. 0

21. Using the same data, how much cash was available for distribution to partners?

A. P358,000
B. P360,000
C. P368,000
D. P370,000
(For Questions 22-23) On January 1, 2022, the partners of BioGo Orgiene Co. decided to liquidate
their partnership. The partnership’s statement of financial position is provided below:

Cash 20,000 Accounts payable 30,000

Non-cash assets 480,000 Loan payable - Fabrigaras 20,000
Bautista, Capital (20%) 100,000
Fabrigaras, Capital (30%) 150,000
Salvador, Capital (50%) 200,000
Total assets 500,000 Total liabilities and equity 500,000

The partnership will be liquidated on an instalment basis. Distribution to owners will be made as
cash becomes available.

As of January 31, 2022, the following transactions occurred:

a. P305,000 worth of non-cash assets were sold for P190,000.
b. P2,000 liquidation expenses were paid. Estimated future liquidation expenses totalled
P1,000.

As of February 28, 2022, the following transactions occurred:

a. The remaining non-cash assets were sold for P60,000.
b. P10,000 liquidation expenses were paid.
c. The liquidation process ended on February 28, 2022.

22. How much cash were received by Salvador on January 31, 2022?

A. P44,100
B. P82,100
C. P41,400
D. P53,500

23. What is the share of Bautista in the maximum possible loss on January 31, 2022?

A. P35,200
B. P52,800
C. P44,100
D. P88,000

24. In the incorporation process, which of the following statements is incorrect?

A. A term that describes the business of a corporation in its name should refer to its
primary purpose.
B. The person elected as temporary treasurer should execute an affidavit regarding the
share capital subscribed and paid up.
C. The sworn statement of assets and liabilities of the corporation is not required
in the process of drafting and executing the articles of incorporation.
D. The corporate name of a foundation shall use the word “Foundation”.

25. If the shares are issued for a non-cash consideration, the shares issued shall be measured
by

A. Fair value of the shares

 B. Par value of the shares
C. Fair value of non-cash consideration
D. Carrying amount of non-cash consideration

26. Ebenezer Company issued 10,000 shares of its P5 par value common stock having a
market value of P25 per share and 15,000 shares of its P15 par value preferred stock
having a market value of P20 per share for a lump sum of P480,000. How much of the
proceeds would be allocated to the common stock?

A. P50,000
B. P218,182
C. P250,000
D. P255,000

(For Questions 27-28) The shareholders’ equity section of Aragon Corporation as of December
31, 2021 contained the following accounts:

Ordinary Share Capital, 300,000 P700,000

shares authorized, 70,000
shares issued and outstanding
Ordinary Share Premium 200,000
Retained Earnings 250,000
Total SHE P1,150,000

Aragon’s board of directors declared a 10% stock dividend on April 1, 2022 when the market
value of the share capital was P12 per share. The date of record is on April 29, 2022 when
the market value was P14 and the date of payment will be on May 15, 2022 when the market
value was P15. Aragon incurred a loss of P37,500 for the first three months.

27. What is the balance of the retained earnings account as of April 1, 2022?

A. P212,500
B. P198,500
C. P128,500
D. P142,500

28. What is the amount to be credited to share premium on the share dividend declaration
transaction dated April 1, 2022?

A. P14,000
B. P28,000
C. P35,000
D. 0
 29. Ibrahim Corporation has the following classes of shares outstanding at December 31,
2021:

Ordinary share capital, P100 par P360,000

6% Preference share capital, 120,000
P100 par, cumulative and fully
participating

Dividends on preference shares are in arrears for 2019 and 2020.

If P57,600 are to be distributed as dividends, the total dividends to be given on preference

shareholders would be

A. P32,400
B. P26,400
C. P30,000
D. P25,200

30. When there is no bidder for delinquent subscription, the subscribed shares will be

A. Issued to the delinquent subscriber

B. Issued in the name of the corporation
C. Reverted back to unsubscribed shares
D. Retained as subscribed

Conceptual Framework and Accounting Standards

1. Which of the following statements is/are incorrect?

I. The Licensure Examination for Certified Public Accountants (LECPA) is offered twice
a year, one in May and another one in December, in authorized testing centers around
the Philippines.
II. The Securities and Exchange Commission shall not register any corporation organized
for the practice of public accountancy.
III. The IASB standard-setting process includes in the correct order: research, exposure
draft, discussion paper, and accounting standard.

A. I only
B. II only
C. I, II
D. I, III

2. Under the financial capital concept, net income occurs when

A. When the nominal amount of net assets at year-end exceeds the nominal amount of
net assets at the beginning.
B. When the physical productive capital at year-end exceeds the physical productive
capital at the beginning after excluding any distributions to and contributions from
owners.
 C. When the nominal amount of net assets at year-end exceeds the nominal
amount of net assets at the beginning after excluding any distributions to and
contributions from owners.
D. When the physical productive capital at year-end exceeds the physical productive
capital at the beginning.

3. Which of the following statements is incorrect?

A. Technically, the gross method of measuring the cost of inventories violates the
matching principle because discounts are recorded only when taken or when cash is
paid rather than when purchases that give rise to the discounts are made.
B. The cost of purchase of inventories comprises the purchase price, import
duties, value-added taxes (VAT), freight, handling and other costs directly
attributable to the acquisition of finished goods, materials, and services.
C. Inventories are subsequently measured at the lower of cost and net realizable value.
D. The objection with regards to the FIFO method is that there is improper matching of
cost against revenue because the goods sold are stated at earlier or older prices
resulting in understatement of cost of goods sold.

4. Which of the following does not constitute cash flow from operating activities?

A. Cash advances and loans made by a financial institution.

B. Cash receipts and payments for investments held at fair value through profit or loss
(FVPL).
C. Cash payments for selling, administrative, and other expenses.
D. Cash receipts and payments for investments held at fair value through other
comprehensive income (FVOCI).
5. All of the following are correct except

A. Change in the method of inventory pricing is a change in accounting policy.

B. Change from cost model to fair value model in measuring investment property
is a change in accounting estimate.
C. Change in residual value of a machinery is a change in accounting estimate.
D. Change in the loss rate on warranty costs is a change in accounting estimate.

6. On April 25, 2023, the Bureau of Internal Revenue (BIR) is in the process of examining
Dolina Company’s income tax returns for 2020 and 2021 but has not proposed a
deficiency assessment. Management feels that an assessment is reasonably possible,
and if an assessment is made, an unfavorable settlement of up to P5,000,000 is
reasonably possible.

Dolina’s accounting year ends on December 31, 2022 and its financial statements are
authorized for issue on March 20, 2023.

What should be reported at the current year-end?

A. No accrual and no disclosure in 2022

B. Recognize the liability in 2022
C. No accrual but has disclosure in 2022
D. Disclosure only on reporting date 2023
7. Fernando Company exchanged a truck with a carrying amount of P1,400,000 and a fair
value of P1,900,000 for a truck and P500,000 cash. The fair value of the truck received
was P1,700,000. The cash flows from the new truck are not expected to be significantly
different from the cash flows of the old truck. At what amount should the truck received in
the exchange be recorded?

A. P1,900,000
B. P1,400,000
C. P2,400,000
D. P2,200,000

8. On July 1, 2022, Duya Company purchased a building for P12,000,000 with a residual
value of P2,000,000 and useful life of 50 years. The government granted P3,000,000
related to the asset. For the purpose of depreciating the asset, entry would include

A. Debit Depreciation expense 70,000 if using asset deduction approach

B. Debit Depreciation expense 70,000 if using deferred grant income approach
C. Debit Depreciation expense 100,000 if using asset deduction approach
D. Debit Depreciation expense 200,000 if using deferred income approach

9. Which of the following statements is true regarding capitalization of interest?

A. Interest cost capitalized in connection with the purchase of land to be used as a

building site should be debited to the land account and not to the building account.
B. The amount of interest cost capitalized during the period should not exceed the
actual interest cost incurred.
C. When excess borrowed funds not immediately needed for construction are temporarily
invested, any interest earned should be offset against interest cost incurred when
determining the amount of interest cost to be capitalized.
D. The minimum amount of interest to be capitalized is determined by multiplying a
weighted average interest rate by the amount of average accumulated expenditures
on qualifying assets during the period.

10. Which of the following statements about related party disclosures is/are correct?

I. An entity shall disclose the name of the entity’s parent and if different, the ultimate
controlling party.
II. The entity shall disclose the amount of the related party transaction.
III. The entity shall disclose the amount of outstanding balance, terms and conditions,
whether secured or unsecured, and nature of consideration to be provided in
settlement.
IV. If neither the entity’s parent nor the ultimate controlling party produces financial
statements available for public use, the name of the next most senior parent that does
so shall also be disclosed.

A. I, III
B. II, III
C. I, II, III
D. I, II, III, IV
11. Which of the following is true about fair value model in accounting for investment in
associate of a small and medium entity?

A. Investment should be carried at the balance sheet date at fair value less cost to sell.
B. Impairment loss shall be recognized if recoverable value is lower than carrying
amount.
C. Transaction cost should be expensed outright at initial recognition.
D. Dividend received is considered a deduction from investment account.

12. Which of the following about interim financial statements is true?

A. Both public and private companies are required to prepare internal and external interim
financial statements.
B. The Securities and Exchange Commission does not require entities covered by the
Rules on Commercial Papers and Financing Act to file quarterly financial reports within
45 days after each quarter-end.
C. Interim financial statements for public and private companies must be consistent in
format and detail with year-end financial statements.
D. Public companies are encouraged to issue quarterly statements and private
companies are not required to, though may choose to do so.

13. The cost of internally generated assets includes all of the following except

A. Cost of materials and services used in generating the intangible asset.

B. Compensation cost of personnel directly engaged in generating the asset.
C. Fees to register a legal right
D. Expenditure on training staff to operate the asset.

14. Which of the following is an investment property?

A. Property being constructed or developed in behalf of third party.

B. Property that is being constructed and developed as investment property.
C. Property held for future development and subsequent use as owner-occupied
property.
D. Owner-occupied property awaiting disposal.

15. Which of the following statements regarding PAS 41: Agriculture is true?

A. Agricultural produce harvested shall be measured at fair value less cost of

disposal at the point of harvest.
B. Agricultural land is a biological asset.
C. The measurement of harvested product is still governed by PAS 41: Agriculture.
D. The agricultural produce growing on bearer plant is classified as inventory, thus
governed by PAS 2: Inventories.

16. The following are considered as monetary items except

A. Financial assets at amortized cost

B. Accounts receivable
C. Liability for refundable deposits
D. Prepaid insurance
17. Which of the following is the proper way to report a gain contingency?

A. As an accrued amount.
B. As deferred revenue.
C. As an account receivable with additional disclosure explaining the nature of the
contingency.
D. As a disclosure only.

18. The issuance of convertible bonds shall be accounted for as

A. Liability in its entirety

B. Equity in its entirety
C. Partly liability and partly equity
D. Partly asset and partly liability

19. Which of the following statements is incorrect?

A. Deferred tax accounting is applicable to all entities, whether public or non-public.

B. Revenues and gains included in the taxable income of current period gives rise to a
deferred tax asset.
C. Presenting the net deferred tax expense or benefit in the entity’s financial
statements is allowed.
D. Permanent differences do not give rise to deferred tax asset or liability.

20. The following comprises service costs except

A. Interest expense on defined benefit obligation

B. Current service cost
C. Past service cost
D. Any gain or loss on settlement

21. In determining diluted earnings per share, dividends on nonconvertible cumulative

preferred stock should be

A. disregarded.
B. added back to net income whether declared or not.
C. deducted from net income only if declared.
D. deducted from net income whether declared or not.

22. Policarpio Company decided to adopt PFRS on December 31, 2024 and to present two-
year comparative information for 2022 and 2023. The beginning of the earliest period for
which the entity should present full comparative information would be

A. January 1, 2020
B. January 1, 2021
C. January 1, 2022
D. January 1, 2023

23. Which of the following statements is correct?

 A. The entity shall recognize immediately the compensation expense that
otherwise would have been recognized for services received over the remainder
of the vesting period.
B. Any payment made to the employee on the cancelation or settlement of the grant shall
not be accounted for as repurchase of equity interest.
C. If the payment exceeds the fair value of the share options, the excess shall be
recognized as loss.
D. If the share options vest immediately, the employee is required to complete a specified
period of service before unconditionally entitled to the share options.

24. For a sale to be highly probable, the following conditions must be met except

A. Management must be committed to a plan to sell the asset or disposal group.

B. The asset or disposal group is available for immediate sale in the present
condition subject only to terms that are usual and customary for sale of such
assets or disposal group.
C. The sale is expected to be a completed sale within one year from the date of
classification as held for sale.
D. The asset or disposal group must be actively marketed for sale at a sale price that is
reasonable in relation to the fair value.

25. After initial recognition, exploration and evaluation asset shall be measured subsequently
at

A. Cost model or fair value model

B. Cost model or revaluation model
C. Cost model
D. Fair value model

26. Which of the following is not required for segment reporting?

A. Reconciliation of reported segment items to consolidated financial statement items.

B. Explanation of basis for determining segments.
C. Description of products and services that generate revenue for each segment.
D. Identification of key members of the management team for each segment.

27. If the business model is to collect contractual cash flows that are solely payments of
principal and interest, the financial asset shall be measured at

A. Fair value through profit or loss

B. Fair value through other comprehensive income
C. Amortized cost
D. Historical cost

28. A promised good or service is distinct if

I. The customer can benefit from the good or service.

II. The entity’s promise to transfer the good or service to the customer is separately
identifiable from other promises in the contract.

A. Only Statement I is correct

 B. Only Statement II is correct
C. Both statements are correct
D. Both statements are incorrect

29. If the lessee is reasonably certain to exercise a purchase option, the lessee shall
depreciate the right of use asset over its

A. Lease term
B. Useful life
C. Lease term or useful life, whichever is shorter
D. Legal life of 20 years, as provided by RA 8293

30. The decommissioning liability

A. Is capitalized as cost of the property and initially recognized at present value

B. Is capitalized as cost of the property and initially recognized at historical cost
C. Is expensed immediately and initially recognized at present value
D. Is expensed immediately and initially recognized at historical cost
Solutions:

Basic Financial Accounting and Reporting

5-6.)

Sales rate 100%

Less: Gross profit rate based on 20%
sales
Cost of goods sold rate 80%

Sales 2,000,000
Less: Cost of goods sold rate 80%
Cost of goods sold 1,600,000

Merchandise inventory, 0
beginning
Add: Purchases (squeeze) 1,680,000
Add: Transportation in 50,000
TGAS 1,730,000
Less: Merchandise inventory, (130,000)
ending
Cost of Goods Sold 1,600,000

7.)

12/31/2021 12/31/2022
Total assets P1,800,000 P2,500,000
Total liabilities 1,500,000 700,000
Total equity 300,000 1,800,000

Total equity, 12/31/2021 300,000

Add: Net income (squeeze) 1,350,000
Additional investments 400,000
Total 2,050,000
Less: Withdrawals (250,000)
Total equity, 12/31/2022 1,800,000

8.) P1,200,500 / (100%-2% Cash Discount) / (100%-30% Trade Discount) = P1,750,000

10.) P4,500 sales on account – P625 cash paid for salaries = P3,875

13-16.)

Sales rate 100%

Less: Gross profit rate based on 40%
sales
Cost of goods sold rate 60%
 Cost of goods sold (3,000,000 x 1,800,000
60%)
Multiply by: Purchases rate 120%
Purchases 2,160,000

Accounts payable, beginning 500,000

Add: Purchases 2,160,000
Total 2,660,000
Less: Accounts payable, ending (300,000)
Cash paid to suppliers 2,360,000

Accounts receivable, beginning 120,000

Add: Net sales 3,0000,000
Total 3,120,000
Less: Accounts receivable, (240,000)
ending
Cash collected from credit 2,880,000
customers

Net sales 3,000,000

Cost of goods sold (1,800,000)
Gross profit 1,200,000
Operating expenses (400,000)
Net income before taxes 800,000
Income tax expense (800k x (240,000)
30%)
Net income after taxes 560,000

18.)

Beginning inventory 140,000

Purchases 790,000
Freight in 10,000
TGAS 940,000
Ending inventory (60,000)
Cost of goods sold 880,000

Gross sales 1,800,000

Sales returns and discounts (220,000)
Net sales 1,580,000
Cost of goods sold (880,000)
Gross profit 700,000

19.)
Unadjusted checkbook balance 8,000,000
NSF Check (3,000,000)
Coins and currencies 800,000
Unmailed check drawn 2,500,000
Cash balance 8,300,000
21-22.)
 Principal 500,000
Interest (500k x 8% x 12/12) 40,000
Maturity value 540,000
Less: Discount (540k x 10% x (27,000)
6/12)
Cash received from the bank 513,000

Notes receivable discounting 500,000

Interest income (500k x 8% x 20,000
6/12)
Total 520,000
Net proceeds (513,000)
Loss (the proceeds is lower 7,000
than the total notes receivable
discounting)

26-30.)

FIFO

Beg. Inventory 12,000

Purchases 287,375
TGAS 299,375
Cost of goods sold (283,875)
Ending inventory 15,500

Weighted-average method
Beg. Inventory 12,000.00
 Purchases 287,375.00
TGAS 299,375.00
Ending inventory (250 units x (15,757.50)
63.03)
Cost of goods sold 283,617.50

Weighted-average cost per unit = TGAS (pesos) / TGAS (units)

Weighted-average cost per unit = P299,375 / 4,750 units
Weighted-average cost per unit = P63.03

Partnership and Corporation

1-2.)
Celine Daniel
Unadjusted capital balances 600,000 400,000
Inventory writedown (20,000)
Mortgage assumed by (40,000)
partnership
Uncollectible accounts (60,000) (40,000)

Celine: (600k x 5 x 2%)

Daniel: (400k x 5 x 2%)
Adjusted capital balances 480,000 360,000

Adjusted capital balances 840,000

Add back mortgage (in case 40,000
Celine will assume it personally)
Total capital balances (#2) 880,000

4-6.)
Figueroa Mahinay Total
Unadjusted capital 3,600,000 1,900,000 5,500,000
balances
Forex adjustments 31,250 31,250
(281,250 – 250,000)
A/R writedown (200,000) (200,000)
Increase in land value 1,250,000 1,250,000
(1,500,000 – 1,250,000)
Decrease in value of (600,000) (600,000)
bldg. (1,400,000 –
2,000,000)
 Assumption by the (40,000) (40,000)
partnership of real
property taxes
Adjusted capital 3,241,250 1,700,000 4,941,250
balances
Equalized interest (2,470,625) (2,470,625)
(4,941,250 / 2)
Cash receipt / 770,625 (770,625)
(payment)

8.)
Alonzo Bartolome Certeza Total
Interest 12,000 6,000 4,000 22,000
Salaries 30,000 20,000 50,000
Residual loss (-33k (35,000) (35,000) (35,000) (105,000)
– 22k – 50k) / 3
Shares – increase 7,000 (29,000) (11,000) (33,000)
/ (decrease) in
capital balances

9-10.)
Daniella Jason Total
Interest 150,000 300,000 450,000

Daniella: (1M x
30% x 6/12)
Jason: (2M x 30% x
6/12)
Salaries 120,000 60,000 180,000

Daniella: (20k x 6)
Jason: (10k x 6)
Bonus 20,000 20,000
Residual profit 60,000 40,000 100,000
(750k-450k-180k-
20k)
Shares – increase 350,000 400,000 750,000
/ (decrease) in
capital balances
Add: Initial 1,000,000 2,000,000 3,000,000
investment
Ending capital 1,350,000 2,400,000 3,750,000
balances

B = 0.20 (750k-450k-180k-B)
B = 0.20 (120K-B)
B = 24,000 – 0.20B
B + 0.20B = 24,000
1.20B = 24,000
1.20B/1.20 = 24,000/1.20
B = 20,000

13-15.)

Encinas (60%) Yasis (40%) Total

Unadjusted capital 515,000 275,000 790,000
balances
A/R writedown (140k- (12,000) (8,000) (20,000)
120k)
Inventory writedown (24,000) (16,000) (40,000)
(200k-160k)
Decrease in value – eqpt (30,000) (20,000) (50,000)
(500k-450k)

Unrecorded liabilities (12,000) (8,000) (20,000)

Adjusted capital 437,000 223,000 660,000
balances

For #13 Encinas Yasis Lazaro Total

Adjusted capital 437,000 223,000 - 660,000
balances - prior
Purchase of (111,500) 111,500 -
interest (223k x
50%)
ACB – after 437,000 111,500 111,500 660,000
admission

For #14 Encinas Yasis Lazaro Total

Adjusted capital 437,000 223,000 - 660,000
balances - prior
Purchase of (109,250) (55,750) 165,000 -
interest

Encinas: (437k x
25%)
Yasis: (223k x
25%)
ACB – after 327,750 167,250 165,000 660,000
admission

For #15 TCC Bonus TAC

Encinas 437,000 7,200 444,200
Yasis 223,000 4,800 227,800
Lazaro 180,000 (12,000) 168,000
Total 840,000 0 840,000

Lazaro’s TAC = 840,000 X 20% = 168,000

 Bonus allocation:

Encinas (12k x 60%) = 7,200

Yasis (12k x 40%) = 4,800

16-17.)

Bacarra Dela Cruz Vasallo Total

(50%) (30%) (20%)
Beg. capital 320,000 192,000 128,000 640,000
Share in net income 400,000 240,000 160,000 800,000
Withdrawals (40,000) (60,000) (30,000) (130,000)
Adjusted capital 680,000 372,000 258,000 1,310,000
balances before
retirement

For #16 Bacarra Dela Cruz Vasallo Total

Adjusted capital 680,000 372,000 258,000 1,310,000
balances before
retirement
Purchase of (680,000) 680,000 - -
Bacarra’s interest
Capital balances - 1,052,000 258,000 1,310,000
after retirement

For #17 Bacarra Dela Cruz Vasallo Total

Adjusted capital 680,000 372,000 258,000 1,310,000
balances before
retirement
Purchase of (680,000) (12,000) (8,000) (700,000)
Bacarra’s interest
Capital balances - 360,000 250,000 610,000
after retirement

20-21.)

Bautista Fabrigaras Salvador Total

(20%) (30% (50%)
Capital balances 100,000 150,000 200,000 450,000
before liquidation
Loan payable - 20,000
Fabrigaras
Total 100,000 170,000 200,000 470,000
Actual loss on (22,400) (33,600) (56,000) (112,000)
realization,
allocated based on
their P&L ratio

(370k proceeds on
sale of NCA – 2k
liquidation
 expenses) – 480k
carrying amount of
NCA
Cash received by 77,600 136,400 144,000 358,000
partners

22-23.)

Bautista Fabrigaras Salvador Total

(20%) (30% (50%)
Capital balances 100,000 150,000 200,000 450,000
before liquidation
Loan payable - 20,000
Fabrigaras
Total 100,000 170,000 200,000 470,000
Actual loss on (23,400) (35,100) (58,500) (117,000)
realization,
allocated based on
their P&L ratio

(190k proceeds on
sale of NCA – 2k
liquidation
expenses) – 305k
carrying amount of
NCA
Balance 76,600 134,900 141,500 353,000
Allocation of (35,200) (52,800) (88,000) (176,000)
maximum loss
possible

(175k carrying
amt. of remaining
NCA + 1k
estimated liq.
expenses)
First instalment 41,400 82,100 53,500 177,000
payment –
1/31/2022

26.)

Solution: (10,000 x P25) + (6,000 x P20) = P550,000

(P250,000 / P550,000) x P480,000 = P218,182

27-28.)

Retained earnings, beginning 250,000

Loss (37,500)
 Share dividends declared (84,000)
(70,000 x 10% x P12 market
value at date of declaration)
Retained earnings, April 1, 128,500
2022

Debit to retained earnings 84,000

(70,000 x 10% x P12 market
value at date of declaration)

If share dividends declared is

not more than 20%, the basis
will be the MV at declaration
date.

If share dividends declared is

20% and above, the basis will
be the par value of the shares.

Credit to share dividends (70,000)

payable
Credit to share premium at 14,000
April 1

29.)

Preference Ordinary Total

Outstanding Share P120,000 360,000 480,000
Capital
Pref. dividends in 14,400 14,400
arrears (120k x 6%
x 2 years)
Current pref. 7,200 7,200
dividends (120k x
6%)
Current ordinary 21,600 21,600
dividends at
participation rate
(360K X 6%)
Remainder for 3,600 10,800 14,400
participation

(P57,600-14,400-
7,200-21,600)

Preference: 14,400
x
(120,000/480,000)

Ordinary: 14,400 x
(360,000/480,000)
 Total 25,200 32,400 57,600

Conceptual Framework and Accounting Standards

7.)

Carrying amount of truck given 1,400,000

Add: cash payment 500,000
Cost of truck received in the 1,900,000
exchange

Note: there is no commercial substance because the cash flows from the new truck are
not expected to be significantly different from the cash flows of the old truck. Therefore, it should
be recorded at the carrying amount of the asset given plus any cash payment.

8.)

Deferred income approach:

Cost 12,000,000
Residual value (2,000,000)
Depreciable amount 10,000,000
Divided by: useful life 50
Depreciation 200,000
Multiply by: July 1 – 6/12
December 31 (6 months)
Debit to depreciation expense 100,000

Deduction from asset approach:

Cost 12,000,000
Less: Government grant (3,000,000)
Depreciable amount 9,000,000
Less: Residual value (2,000,000)
Depreciable amount 7,000,000
Divided by: useful life 50
Depreciation 140,000
Multiply by: July 1 – 6/12
December 31 (6 months)
Debit to depreciation expense 70,000