FAR Review Material

No. 125 Brgy.
San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : [email protected]
MASTERY CLASS
1. The following is a statement of retained earnings for the year ended December 31, 2021 provided by Texas
Company (in millions):
Balance at the beginning of the year 85,000

Additions:
Change in estimate of 2021 amortization expense 2,500
Gain on sale of land 18,000
Interest revenue 4,500
Profit and loss for 2021 13,000
Total additions 38,000
Total 123,000
Deductions
Increased depreciation due to change in useful life 5,000
Dividends declared and paid 11,000
Loss on sale of equipment 3,000
Loss from major casualty 7,000
Total deductions 26,000
Balance at yearend 97,000
What amount of net income should have been reported in the income statement for the year 2021?
a. 23,000
b. 13,000
c. 12,000
d. 25,500
2. Charisse Company provided the following trial balance on June 30, 2021:
Cash overdraft ( 200,000) Property, plant and equipment, net 1,900,000
Accounts receivable, net 700,000 Accounts payable and accrued expenses 640,000
Inventory 1,200,000 Share capital 3,000,000
Prepaid expenses 200,000 Share premium 500,000
Land held for resale 2,000,000 Retained earnings 1,660,000
Checks amounting to P600,000 were written to vendors and recorded on June 30 resulting in cash overdraft of
P200,000. The checks were mailed on July 9. Land held for resale was sold for cash on July 15, 2021. The financial
statements were issued on July 31, 2021. On June 30, 2021, what total amount should be reported as current
assets?
a. 4,500,000
b. 4,100,000
c. 4,300,000
d. 2,500,000
3. On December 31, 2021, Banister Company reported the following current assets:
Cash 3,200,000
Accounts receivable 2,000,000
Inventory 2,800,000
Deferred charges 200,000
8,200,000
The accounts receivable consisted of the following items:
Customers’ accounts 1,420,000

Accounts receivable – assigned (net of equity of assignee in
accounts assigned, P60,000) 240,000
Advances to subsidiary 260,000
Allowance for sales return ( 120,000)
Claims against shipper for goods lost in transit 100,000
Subscription receivable due on December 31, 2023 100,000
2,000,000
What amount should be recognized as total current assets on December 31, 2021?
a. 7,740,000
b. 7,700,000
c. 7,940,000
d. 8,200,000
1|P a g e TSIY/RSORIANO/JPAP A
No. 125 Brgy. San Sebastian
Mobile : 0927 283 8234
Telephone : (043) 723 8412
4. Robert Company showed net income of P4,800,000 in its income statement for the current year. Selling expenses
were equal to 15% of sales and also 25% of cost of sales. All other expenses were 13% of sales. What is the gross
profit for the current year?
a. 40,000,000
b. 24,000,000
c. 16,000,000
d. 20,000,000
5. Seattle Company is part of a major industrial group and is known to accurately disclose related party transactions
in its financial statements. Remuneration and other payments made to the entity’s chief executive officer during
2021 were:
Annual salary 2,000,000

Share options and other share-based payments 1,000,000
Contributions to retirement benefit plan 500,000
Reimbursement of travel expenses for business trips 1,200,000
What is the total amount that should be disclosed as “compensation” to key management personnel to conform
with the related party disclosure required by the standard?
a. 3,500,000
b. 4,700,000
c. 3,000,000
d. 2,500,000
6. The audit of Carolina Company for the year ended December 31, 2021 was completed on March 1, 2022. The
financial statements were signed by the managing director on March 15, 2022 and approved by the shareholders
on March 31, 2022. The next events have occurred.
* On January 15, 2022, a customer owing P900,000 to Carolina filed for bankruptcy. The financial statements
include an allowance for doubtful debts pertaining to this customer of P100,000
* Specialized equipment costing P525,000 purchased on September 1, 2021 was destroyed by fire on
December 15, 2021. Carolina Company has booked a receivable of P400,000 from the insurance company.
After the insurance company completed its investigation on February 1, 2022, it was discovered that the fire
took place due to the negligence of the machine operator. As a result, the insurer’s liability was zero on this
claim.
* Carolina Company’s issued capital comprised 100,000 equity shares with P100 par value. The company
issued additional 25,000 shares on March 1, 2022.
What amount should Carolina Company report as net amount of “adjusting events” on December 31, 2021?
a. 1,300,000 c. 3,800,000
b. 1,200,000 d. 3,700,000
7. Memphis Company has two divisions, North and South. Both qualify as business components. In 2021, the firm
decided to dispose of the assets and liabilities of Division South. It is probable that the disposal will be completed
early next year. The revenue and expenses of Memphis Company for 2021 and 2018 are as follows:
2021 2020
Sales – North 6,200,000 5,000,000
Total nontax expenses – North 4,800,000 4,200,000
Sales – South 4,500,000 5,300,000
Total nontax expenses - South 5,000,000 4,500,000
During the later part of 2021, Memphis disposed of a portion of Division South and recognized a pretax loss of
P3,000,000 on the disposal. The income tax rate for Memphis Company is 30%. How much should Memphis
report as a loss from discontinued operations in 2021?
a. 3,000,000
b. 3,500,000
c. 1,950,000
d. 2,450,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
8. On January 1, 2021, New Orleans Company leased a building to San Antonio Corporation for a ten-year term at
an annual rental of 1,200,000. At inception of the lease, New Orleans received P4,800,000 covering the first two
years' rent of P2,400,000 and a security deposit of P2,400,000. This deposit will not be returned to San Antonio
upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion
of the P4,800,000 should be shown as a current and long-term liability, respectively, in New Orleans's December
31, 2021 balance sheet?
Current Liability Long-term Liability
a. 0 4,800,000
b. 2,400,000 1,200,000
c. 2,200,000 2,200,000
d. 1,200,000 2,400,000
9. New York had sales of P10,000,000 during December 2021. Experience has shown that merchandise equaling
7% of sales will be returned within 30 days and an additional 3% will be returned within 90 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 New York report for net sales in its income statement
for the month of December, 2021?
a. 10,000,000
b. 7,500,000
c. 9,000,000
d. 8,500,000
10. St. Louis Company reports the following information as of the end of the year:
* Investment securities of P1,000,00. These securities are ordinary share investments in companies that are
traded in the Philippine Stock Exchange. As a result, the shares are very actively traded in the market.
* Investment securities of P2,000,000. These securities are government treasury bills. The treasury bills have
a 10-year term and purchased on December 31 at which time they had two months to go until they mature.
* Cash of P3,400,000 in the form of coin, currency, savings accounts, and checking accounts.
* Investment securities of P1,500,000. These securities are commercial paper (short-term IOUs from other
companies). The term of the paper is nine months and they were purchased on December 31 at which time
they had four months to go until they mature.
How much should be reported as cash and cash equivalents at year-end?

a. 5,400,000
b. 6,400,000
c. 6,900,000
d. 7,900,000
11. California Company had the following cash balances at December 31, 2021:
Undeposited coin and currency 500,000
Unrestricted demand deposit 1,500,000
Company checks written and deducted from the demand deposits
amount but not scheduled to be mailed until January 2, 2022 300,000
Time deposits restricted for use (expected use in 2022) 3,000,000
In exchange for a guaranteed line of credit, California has agreed to maintain a minimum balance of P150,000 in
its unrestricted demand deposit account. How much should California report as cash in its December 31, 2021,
balance sheet?
a. 5,300,000 c. 2,300,000
b. 2,000,000 d. 2,150,000
12. On August 1 2021, Idaho Company’s P 2,000,000 one year, noninterest- bearing note due July 31, 2020 was
discounted at Alaska Bank at 10.80%. Idaho uses the straight-line method of amortizing notes discounts. What
amount should Idaho report for note payable in its December 31, 2021 statement of financial position?
a. 2,000,000 c. 1,874,000
b. 1,910,000 d. 1,784,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
13. The financial statements of Kingdom Company included the following information:
January 1, 2021 December 31, 2021

Allowance for doubtful accounts 120,000
Sales 16,000,000
Cash collection 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 2020. During 2021, it was necessary to recognize doubtful accounts expense of P200,000 and write
off worthless accounts of P60,000. On December 1, 2021, 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, 2021?
a. 3,280,000
b. 3,340,000
c. 3,560,000
d. 3,260,000
14. On December 31, 2021, Ricardo 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, 2021 was 8%. The PV of 1 at 8% due in nine months is
.944, and the PV of 1 at 8% due in 5 years is .68. On December 31, 2021, what total carrying amount should be
reported for the two notes receivable?
a. 3,248,000
b. 3,494,400
c. 3,360,000
d. 3,564,000
15. Green Bay Company provides financing to other companies by purchasing their accounts receivable on a
nonrecourse basis. Green Bay charges its clients a commission of 15% on all receivables factored. In addition,
Green Bay withholds 10% of receivables factored as protection against sales returns or other adjustments. Green
Bay credits the 10% withheld to Client Retainer account and makes payments to clients at the end of each month
so that the balance in the retainer is equal to 10% of unpaid receivables at the end of the month. Experience has
led Green Bay to establish an allowance for bad debts of 4% of all receivables purchased.
On January 15, Green Bay purchased receivables from Illinois Company totaling P1,500,000. Illinois previously
established an allowance for bad debts for these receivables at P35,000. By January 31, Green Bay had collected
P1,200,000 on these receivables. What is the loss on factoring to be recognized by Illinois Company?
a. 375,000
b. 225,000
c. 190,000
d. 0
16. Tucson Company purchased from Fern Company a P4,000,000, 8% 5-year note that required five equal annual
year-end payments of P1,001,800. The note was discounted to yield a 10% rate to Tucson. At the date of
purchase, Tucson recorded the note at its present value of 3,798,000. What should be the total revenue earned
by Tucson over the life of this note?
a. 1,211,000
b. 1,009,000
c. 1,600,000
d. 2,000,000
17. San Francisco Company manufactures bath towels. 60% of the production are “Class A” which sells for P500 per
dozen and 40% are “Class B” which sells for P250 per dozen. During 2021, 60,000 dozens were produced at an
average cost of P360 a dozen. The inventory at the end of the year was as follows:
2,200 dozens “Class A” @ P360 792,000

3,000 dozens “Class B” @ P360 1,080,000
Total inventory value 1,872,000
Using the relative sales value method which management considers as a more equitable basis of cost distribution,
what is the net value of the inventory?
a. 1,170,000
b. 1,665,000
c. 1,872,000
d. 2,340,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
18. San Diego Company sells a new product. During a move to a new location, the inventory records for the product
were misplaced. The bookkeeper has been able to gather some information from the purchases and sales records.
The July purchases are:
Quantity Unit Cost Total Cost

July 5 10,000 65 650,000
9 12,000 63 756,000
12 15,000 60 900,000
25 14,000 62 868,000
51,000 3,174,000
On July 31, 15,000 units were on hand with a total value of P928,000. The sales for July amount to P6,000,000,
or 60,000 units at P100 per unit. San Diego has always used a periodic FIFO inventory costing system. Gross
profit on sales for July was P2,400,000. What was the cost of the inventory on July 1?
a. 1,354,000
b. 2,400,000
c. 2,826,000
d. 426,000
19. Before preparing the financial statements for 2021, you are instructed to review the transactions of Arizona
Corporation and determine whether any correcting entries are required and whether the inventory of P4,500,000
determined by physical count on December 31, 2021 should be changed.
1. An invoice for P500,000, terms FOB shipping point, was received and entered December 30,
2021. The receiving report shows that the merchandise was received on January 5, 2022,
and the bill of lading shows that they were shipped January 2, 2022.
2. Merchandise costing P200,000 shipped by a vendor FOB seller on December 31, 2021, and
received by Arizona on January 5, 2022.
3. Merchandise costing P450,000 were received December 30, 2021, but no entry was made
for them because “they were ordered with a specified delivery of no earlier than January 3,
2022.”
What is the correct inventory that Arizona Corporation should show on December 31, 2021?
a. 4,700,000
b. 5,150,000
c. 4,200,000
d. 4,650,000
20. Utah Company sells merchandise on a consignment basis to dealers. The selling price of the merchandise
averages 25% above cost of the merchandise. The dealer is paid a 10% commission on the sales price for all
sales made. All dealer sales are made on a cash basis. The following consignment sales activities occurred
during 2021:
Manufacturing cost of goods shipped on consignment 5,000,000

Sale price of merchandise sold by dealers 4,400,000
Payments made by dealers after deducting commission 2,780,000
How much is the gross profit on sales?

a. 1,250,000
b. 1,100,000
c. 3,960,000
d. 880,000
21. Llamas Company purchased 1,000 llamas on January 1, 2021. These llamas will be sheared semiannually and
their wool sold to specialty clothing manufacturers. The llamas were purchased for P148,000. During 2021 the
change in fair value due to growth and price changes is P9,400, the wool harvested but not yet sold is valued at
net realizable value of P18,000, and the change in fair value due to harvest is (P1,150). What is the value of the
llamas on Lucy’s Llamas statement of financial position on December 31, 2021?
a. 156,250
b. 148,000
c. 146,850
d. 128,850
Mobile : 0927 283 8234
Telephone : (043) 723 8412
22. Bakersfield Company purchased the following securities during 2020:
Classification Cost Market Value

(December 31, 2020)
Security A Trading 900,000 1,000,000
Security B Trading 1,000,000 1,600,000
On July 31, 2021, the company sold all of the shares of Security B for a total of P1,100,000. As of December 31,
2021, the shares of Security A had a market value of P600,000. No other activity occurred during 2021in relation
to the trading security portfolio. What is the gain or loss on sale of Security B on July 31, 2021?
a. 500,000 gain
b. 500,000 loss
c. 100,000 gain
d. 100,000 loss
23. At December 31, 2021, Los Angeles Corporation had the following equity securities that were purchased during
2021, its first year of operation:
Unrealized
Cost Fair Value
Gain (Loss)
FVPL Securities:
Silicon Company 500,000 630,000 130,000
Los Angeles Corporation 100,000 80,000 ( 20,000)
Daly City Corporation 200,000 300,000 100,000
Totals 800,000 1,010,000 210,000
FVOCI Securities:
Oakland Company 150,000 200,000 50,000
Sacramento Corporation 95,000 150,000 55,000
Totals 245,000 350,000 105,000
All market declines are considered temporary. How much is the net unrealized gain to be recognized in Los
Angeles’s 2021 income statement?
a. 190,000 c. 315,000
b. 210,000 d. 230,000
24. On January 1, 2020, Colorado Company borrowed P5,000,000 from a bank at a variable rate of interest for 4
years. Interest will be paid annually to the bank on December 31 and the principal is due on December 31, 2023.
Under the agreement, the market interest on each January 1 resets the variable rate for that period and the amount
of interest to be paid on December 31.
To protect itself from fluctuations in interest rates, the entity hedges the variable interest by entering into a four-
year “receive variable, pay fixed” interest rate swap with a speculator. The interest rate swap is based on the
notional amount of P5,000,000 and an 8% fixed interest rate. The entity has designated this interest swap as a
cash flow hedge of the variability of interest payments on the variable rate loan. Assume that the market interest
rates are 8% on January 1, 2020, 10% on January 1, 2021 11% on January 1, 2022. The present value of 1 factors
are as follows:
At 10% At 11%
For one period .91 .90
For two periods .83 .81
For three periods .75 .73
What is the fair value of the interest rate swap receivable (derivative asset) on December 31, 2021?
a. 249,000
b. 256,500
c. 300,000
d. 209,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
25. Anaheim Company ventured into construction of a mega shopping mall in the North area, which is rated as the
largest shopping mall in South East Asia. The company’s board of directors decided that instead of selling the
shopping mall to a local investor, the company would hold this property for purposes of earning rentals by letting
out space on the shopping mall to tenants.
The construction of the shopping mall was completed and the property was placed in service on December 31,
2019. The cost of construction of the shopping mall was P100 million. The useful life of the shopping mall is 10
years and its residual value is P10 million. An independent valuation expert provided the following fair values at
each subsequent year-end:
December 31, 2020 120 million

Using the “fair value model” and ignoring income tax implications, what amount of gain or loss should be recognized
for the year ended December 31, 2022?
a. 15,000,000 gain in profit or loss
b. 10,000,000 loss in profit or loss
c. 15,000,000 gain in equity
d. 10,000,000 loss in equity
26. San Jose Company developed an equipment to be used in its manufacturing process. The following expenses
were incurred in developing and patenting the equipment:
Research and development 2,000,000

Metal used in the construction of the equipment 500,000
Blueprints used to design the equipment 200,000
Wages paid for employees’ work on the research development
and construction of the equipment 1,500,000
Legal expenses to obtain the patent 800,000
Expenses of drawings required by the patent office to be
submitted with the patent application 50,000
Fees paid to the patent office 150,000
1. What is total cost to be capitalized as equipment?

a. 2,200,000
b. 1,000,000
c. 1,200,000
d. 2,500,000
2. What is the total cost to be capitalized as patent?

a. 3,000,000
b. 1,000,000
c. 1,200,000
d. 2,000,000
27. Burmese Company started construction of a new office building on January 1, 2021 and moved to the building on
July 1, 2022. Of the building’s total cost of P50,000,000, P40,000,000 was incurred evenly throughout 2021. The
entity’s incremental borrowing rate was 12% throughout 2021 and the total interest incurred in 2021 by Burmese
was P2,040,000. What amount should Burmese recognize as capitalized interest on December 31, 2021?
a. 2,040,000
b. 2,400,000
c. 3,000,000
d. 4,800,000
28. Arena Company purchased a machine for P4,500,000 on January 1, 2021. The machine has an estimated life of
five years and a residual value of P500,000. The machine is depreciated using straight-line method. On January
1, 2023, the entity switched to sum of years’ digits method. What is the carrying amount of the machine on
December 31, 2023?
a. 1,200,000
b. 1,700,000
c. 1,600,000
d. 2,400,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
29. Portland Company purchased Lisbon Company for P60,000,000 cash. A schedule of the market values of Lisbon’s
assets and liabilities as of the purchase date is given below:
Cash 1,000,000
Receivables 10,000,000
Inventory 12,000,000
Property, plant and equipment 40,000,000
Goodwill 5,000,000
Current liabilities 12,000,000
Noncurrent liabilities 8,000,000
What is the goodwill arising from the acquisition?

a. 17,000,000
b. 12,000,000
c. 40,000,000
d. 5,000,000
30. South Dakota Company paid P10,000,000 to purchase the following portfolio of intangibles with the estimated fair
values:
Internet domain name 3,000,000

Order backlog 2,400,000
In-process research and development 4,800,000
Operating permit 1,800,000
In addition, South Dakota spent P2,000,000 to run an advertising campaign to boost its image in the local
community. How much should be recognized as cost of acquired in-process research and development?
a. 6,000,000
b. 4,000,000
c. 5,600,000
d. 0
31.The following calculation refers to an impairment loss suffered by Bran Company on December 31, 2020:
Goodwill Net assets

Carrying amount 4,500,000 13,500,000
Impairment loss (4,500,000) (3,000,000)
Adjusted carrying amount - 10,500,000
There has been a favorable change in the estimate of the recoverable amount of the net assets. The recoverable
amount is now P12,000,000 on December 31, 2021. The carrying amount of the net assets on December 31, 2021
would have been P10,800,000 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 loss should be recognized in 2021?
a. 1,500,000
b. 3,600,000
c. 2,400,000
d. 0
32.Torn Company purchased two machines for P1,800,000 each on January 1, 2021. The machines were put into use
immediately. Machine A has a useful life of 4 years and can be used only in one R&D project. Machine B will be
used in one R&D project for 3 years and then used by the production division for an additional 3 years. What amount
should be recognized as research and development expense for 2021?
a. 1,800,000
b. 2,100,000
c. 2,400,000
d. 750,000
33. Wyoming Company purchased a building on January 1, 2021 for a total of P10,000,000. The building has been
depreciated using the straight-line method with a 25-year useful life and no residual value. As of December 31,
2024, Wyoming is evaluating the building for possible impairment. The building has a remaining useful life of 15
years and is expected to generate cash inflows of P700,000 per year. The applicable discount rate is 8%. Round
off present value factor to two decimal places. The estimated fair value of the building on December 31, 2024 is
P5,300,000. How much should be recognized as impairment loss on December 31, 2024?
a. 2,408,000
b. 3,100,000
c. 4,700,000
d. 0
Mobile : 0927 283 8234
Telephone : (043) 723 8412
34. On January 1, 2021, Cincinnati Company borrowed P3,550,000 from a major customer evidenced by a noninterest
bearing note due in three years. Cincinnati agreed to supply the customer’s inventory needs for the loan period at
an amount lower than market price. At 12% imputed interest rate for this type of loan, the present value of the
note is P2,520,000 at January 1, 2021. What amount of interest expense should be included in the 2021 income
statement?
a. 426,000
b. 302,400
c. 343,333
d. 0
35. Michigan Company, a division of Rotterdam Development Corporation maintains escrow accounts and pays real
estate taxes for Rotterdam’s mortgage customers. Escrow funds are kept in interest bearing accounts. Interest,
less a 20% service fee, is credited to the mortgagee’s account and used to reduce future escrow payments. The
information regarding the escrow accounts kept by Michigan is as follows: escrow accounts liability as of January
1, 2021 was P2,000,000, while Michigan received payments from customers during 2021 amounting to
P4,200,000. Karen paid real estate taxes during 2021 in the amount of P3,500,000, while the interest earned on
the escrow funds was P500,000. What amount should Michigan report as escrow accounts liability in its December
31, 2021 statement of financial position?
a. 2,700,000
b. 3,200,000
c. 3,100,000
d. 2,300,000
36. Buffalo Company sells its 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. Buffalo
accounts for the containers not returned within the time limit as being retired by sale at the deposit amount.
Information for 2021 is as follows:
Container deposits on January 1, 2021 from deliveries in:
2019 700,000
2020 3,300,000 4,000,000
Deposits for containers delivered in 2021 5,000,000
Deposits for containers returned in 2021 from deliveries in
2019 400,000
2020 1,500,000
2021 2,800,000 4,700,000
What is the liability for deposits on returnable containers on the December 31, 2021 statement of financial position?
a. 4,300,000 c. 2,200,000
b. 4,000,000 d. 9,000,000
37. James Company operates a retail grocery store that is required by law to collect refundable deposit of P5 on soda
cans. Information for the current year is as follows:
Liability for refundable deposit – January 1 150,000

Cans of soda sold 100,000
Soda cans returned 110,000
On February 1, the entity subleased space and received P25,000 deposit to be applied against rent at the
expiration of the lease in 5 years. In the December 31 statement of financial position, what amount should be
reported as current liability for deposit?
a. 125,000
b. 140,000
c. 100,000
d. 25,000
38. During 2021, Daniel Company became involved in a tax dispute with the BIR. On December 31, 2021, the tax
advisor believed that an unfavorable outcome was probable. A reasonable estimate of additional tax was P500,000
but could be as much as P750,000. After the 2021 financial statements were issued, the entity received and
accepted a BIR settlement offer of P650,000. What amount of accrued liability should be reported on December 31,
2021?
a. 500,000
b. 750,000
c. 650,000
d. 625,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
39. During January 2021, Dave Company won a litigation award for P1,500,000 that was tripled to P4,500,000 to include
punitive damages. The defendant, who is financially stable, has appealed only the P3,000,000 punitive damages.
The entity was awarded P5,000,000 in an unrelated suit it filed, which is being appealed by the defendant. Counsel
is unable to estimate the outcome of the appeal. In the 2021 income statement, what amount of pretax gain should
be reported?
a. 1,500,000
b. 4,500,000
c. 5,000,000
d. 3,000,000
40. Seven Company has an overdue 8% note payable to Rich Bank at P4,000,000 and accrued interest of P320,000.
As a result of a restructuring agreement on January 1, 2021, Rich Bank agreed to the following provisions: Principal
obligation is reduced to P3,500,000, the accrued interest is forgiven, the maturity date is extended to December 31,
2020, and the new interest rate increased to 10% to be paid every December 31. The PV of 1 for 4 periods is .735
at 8% and .683 at 10%. The PV of an ordinary annuity of 1 for 4 periods is 3.31 at 8% and 3.17 at 10%. What is the
gain on extinguishment to be recognized for 2021?
a. 500,000
b. 589,000
c. 820,000
d. 0
41. On October 1, 2020, Wisconsin Company entered into a 6-month, P5,200,000 purchase commitment for a supply
of a special product. On December 31, 2020, the market value of this material had fallen to P5,000,000. On March
31, 2021, when the actual purchase is made, the market value of the inventory is P4,900,000. What is the loss on
purchase commitment to be recognized on March 31, 2021?
a. 200,000
b. 100,000
c. 300,000
d. 0
42. On July 1, 2021, the City government issued realty tax assessments for its fiscal year ended June 30, 2021. On
September 1, 2021, Florida Company purchased a land in the City. The purchase price was reduced by a credit
for accrued realty taxes. Florida did not record the entire year’s real estate tax obligation but instead records tax
expenses at the end of each month by adjusting prepaid real estate taxes or real estate taxes payable as
appropriate. On November 1, 2021, Florida paid the first of two equal installments of P600,000 for realty taxes.
What amount of this payment should Florida record as a debit to real estate taxes payable?
a. 600,000
b. 500,000
c. 400,000
d. 200,000
43. On January 1, 2021, Carmina Company received P5,385,000 for a P5,000,000 face amount, 12% bond, a price
that yields 10%. The bond pays interest semiannually. The entity elected the fair value option for valuing financial
liabilities. On December 31, 2021, the fair value of the bond is determined to be P5,125,000. The entity recognized
interest expense of P600,000 in the 2021 income statement. What is the gain or loss that should be recognized in
2021 to report this bond at fair value?
a. 260,000 gain
b. 260,000 loss
c. 600,000 loss
d. 340,000 loss
44. On August 1, 2021, Miami Company leased a machine to Orlando Company for six years requiring payments of
P100,000 at the beginning of each year. The machine cost P480,000, which is the fair value at the lease date, and
has a useful life of eight years with no residual value. Miami ’s implicit interest rate is 10% and present value factors
are as follows:
Present value of an annuity due of 1 at 10% for 6 periods 4.791

Present value of an annuity due of 1 at 10% for 8 periods 5.868
Miami appropriately recorded the lease as a direct financing lease. What is the gross investment at the inception
of the lease?
a. 600,000
b. 586,800
c. 480,000
d. 479,100
10 | P a g e TSIY/RSORIANO/JPAP A
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45. On October 1, 2021, Jeter Company leased office space at a monthly rental of P350,000 for ten years expiring on
September 30, 2031. As an inducement to enter into the lease, the lessor permitted Jeter to occupy the premises
rent-free from October 1, 2021 to December 31, 2021. For the year ended December 31, 2021, what amount should
be reported as rent income?
a. 1,050,000
b. 1,023,750
c. 4,095,000
d. 0
46. Kindle Company leases computer equipment to customers under a direct financing lease. The equipment has no
residual value at the end of the lease and the lease does not contain bargain purchase option. The entity wishes to
earn 8% interest on a 5-year lease of equipment with a cost of P3,234,000. The present value of an annuity due of
1 at 8% for 5 years is 4.312. At the beginning of the current year, the entity leased the equipment to another entity.
What is the total interest revenue to be earned over the lease term?
a. 1,293,600
b. 1,394,500
c. 516,000
d. 750,000
47. On January 1, 2021, Gene Company leased equipment from Helen Company. The lease requires ten annual
payments of P200,000 beginning immediately on January 1, 2021. The lease specifies an interest rate of 12% and
a purchase option of P200,000 at the end of the tenth year that Gene considers to be reasonably exercised. The
equipment has a useful life of 10 years. The present value factor of an annuity due at 12% for 10 periods is 6.328,
while the present value factor of 1 at 12% for 10 periods is 0.322. What total amount of interest expense should
Gene recognize in 2021?
a. 268,600
b. 135,600
c. 133,000
d. 200,000
48. Las Vegas Company manufactures equipment that they sell or lease. On January 1, 2021, Las Vegas leased
equipment to St. Paul Company for an eight-year period after which ownership of the leased asset will be
transferred to St. Paul. The lease calls for equal annual payments of P500,000, due on January 1 of each year.
Las Vegas expects a 10% return on the financing. The first payment was made on January 1, 2021. The normal
sales price of the equipment is P2,950,000, and cost is P2,500,000. For the year ended December 31, 2021, what
amount of income should Las Vegas report from the lease transaction?
a. 245,000
b. 295,000
c. 450,000
d. 695,000
49. The following information was extracted from the records of Hawaii Company as at December 31, 2021:
Carrying amount Tax base
Accounts receivable 1,500,000 1,750,000
Motor vehicle 1,650,000 1,250,000
Provision for warranty 120,000 0
Deposits received in advance 150,000 0
The depreciation rates for accounting and taxation are 15% and 25% respectively. The deposits are taxable when
received and warranty costs are deductible when paid. An allowance for doubtful debts of P250,000 has been
raised against accounts receivable for accounting purposes but such debts are deductible only when written off as
uncollectible. The tax rate is 30%. What amount should Hawaii Company report a deferred tax liability on
December 31, 2021?
a. 120,000
b. 156,000
c. 36,000
d. 81,000
50. Alaska Company is determining the amount of its pretax financial income for 2021 by making adjustment to taxable
income from the company’s 2021 income tax return. The tax return indicates taxable income of P4,000,000, on
which a tax liability of P1,200,000 has been recognized. Following are the items that may be required to determine
pretax financial income from the amount of taxable income:
• Accelerated depreciation for income tax purposes was P1,200,000 and straight-line depreciation
on these assets is P1,000,000.
• Goodwill impairment loss of P500,000 was not included as a deduction in the tax return, but may
be deducted in the income statement.
• Interest on treasury bills will not included in the tax return. During the year, P800,000 was
received on these investments.
What is Alaska’s financial income subject to tax?
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a. 4,500,000
b. 3,700,000
c. 4,100,000
d. 4,200,000
51. Pension plan information for Promises Company is as follows:
Projected benefit obligation – January 1, 2021 3,500,000

Accumulated benefit obligation – January 1, 2021 2,800,000
Pension benefits paid during the year 250,000
Current service cost for 2021 1,750,000
Past service cost for 2021 (all benefits vest immediately) 425,000
Expected return on plan assets 245,000
Actuarial loss due to change in assumptions on projected benefit obligation 200,000
Discount or settlement rate 10%
What is the defined benefit obligation at December 31, 2021?

a. 5,550,000
b. 5,075,000
c. 5,775,000
d. 5,975,000
52. Regina Company sponsors a noncontributory defined benefit pension plan. On December 31, 2021, the end of
the company’s accounting period, the company received the projected benefit obligation from the independent
actuary. The following data were included:
Pension benefits paid 950,000

Projected benefit obligation – 12/31/21 3,300,000
Interest cost 300,000
Settlement discount rate 12%
Based on this information, what is Regina Company’s 2021 current service cost?
a. 150,000 c. 1,150,000
b. 1,750,000 d. 1,450,000
53. Pittsburgh Corporation has the following equity accounts:
Retained earnings 10,000,000

Asset revaluation reserve 3,200,000
Par value of shares 5,000,000
Special reserve 4,000,000
Share premium 8,500,000
Total equity 30,700,000
What is Pittsburgh’s amount of distributable equity?

a. 14,000,000
b. 10,000,000
c. 22,500,000
d. 17,200,000
54. Connecticut Company has granted 100 share appreciation rights to each of its 1,000 employees on January 1,
2021. The management feels that as of December 31, 2021, 90% of the awards will vest on December 31, 2023.
The fair value of each share appreciation right on December 31, 2021 is P10. What is the fair value of the liability
for the share appreciation rights on December 31, 2021?
a. 1,000,000 c. 300,000
b. 900,000 d. 450,000
55. Lancaster Company grants 150 share options to each of its 500 employees on January 1, 2019, and exercisable
starting December 31, 2021 for a 2-year period. Each grant is conditional upon the employee working for the entity
over the next three years. The entity estimates that the fair value of each option is P40. On the basis of weighted
average probability, the entity estimates that 20% (100 employees) of the employees will leave during the three-
year period and forfeit their rights to the share options. During 2019, 20 employees leave, and Lancaster still
believes that 20% is a fair estimate of employee departures. During 2020, a further 22 employees leave. Due to
the low turnover as of December 31, 2020, Lancaster revises its estimate of total employee departures over the
three-year period from 20% to 15%. During 2021, a further 18 employees leave. What is the compensation
expense to be recognized by Lancaster for the share options in 2021?
a. 900,000 c. 1,700,000
b. 800,000 d. 940,000
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56. Virginia Company issued fully paid shares to 200 employees on December 31, 2021. Normally, shares issued to
employees vest over a two-year period but these shares have been given as a bonus to the employees because
of their exceptional performance during the year. The shares have a market value of P800,000 on December 31,
2021 and an average fair value of P1,200,000 for the year. What amount would be expensed for this share-based
payment transaction?
a. 800,000 c. 1,200,000
b. 2,000,000 d. 1,000,000
57. On December 31, 2021, Salt Lake, Inc. had 600,000 shares of ordinary shares outstanding. On April 1, 2021, an
additional 180,000 shares of ordinary shares were issued for cash. Salt Lake also had P5,000,000 of 8%
convertible bonds outstanding at December 31, 2021, which are convertible into 150,000 shares of ordinary
shares. The bonds are dilutive in the 2021 earnings per share computation. No bonds were issued or converted
into ordinary shares during 2021. What is the number of shares that should be used in computing diluted earnings
per share for 2021?
a. 735,000 c. 885,000
b. 780,000 d. 910,000
58. Palm Beach Corporation sells equipment service contracts agreeing to repair construction equipment for a two-
year period. Palm Beach’s experience is that, of the total amount spent for repairs on service contracts, 40% is
incurred evenly during the first contract year and 60% evenly during the second contract year. Receipts from
service contracts sales for the two years ended December 31, 2020 and December 31, 2021 are P4,000,000 and
P5,000,000, respectively. Receipts from contracts are credited to unearned service contract revenue. Assume
that all contract sales are made evenly during the year, what is the total service contracts revenue to be recognized
in 2021?
a. 3,000,000 c. 5,000,000
b. 2,200,000 d. 2,000,000
59. Garner Company paid salaried employees biweekly. Advances made to employees are paid back by payroll
deductions. The entity provided the following information about salaries:
December 31, 2020 December 31, 2021
Employee advances 24,000 36,000

Accrued salaries payable 40,000 ?
Salaries expense during the year 420,000
Salaries paid during the year (gross) 390,000
On December 31, 2021, what amount should be reported as accrued salaries payable?
a. 94,000 c. 70,000
b. 82,000 d. 30,000
60. Tampa Bay Incorporated, had net income for 2021 of P3,500,000. Additional information is as follows:
Amortization of intangibles 300,000

Depreciation on plant assets 1,100,000
Long-term debt:
Bond premium amortization 150,000
Interest paid 600,000
Provision for doubtful accounts:
Current receivables 500,000
Long-term nontrade receivables 300,000
What should be the net cash provided by operating activities in the statement of cash flows for the year ended
December 31, 2021?
a. 5,850,000
b. 4,950,000
c. 5,250,000
d. 5,550,000
61. Syracuse Corporation transactions for the year ended December 31, 2021 included the following:
• Purchased real estate for P5,000,000 cash which was borrowed from a bank.
• Sold available-for sale securities for P750,000 at a gain of P250,000.
• Paid dividends of P600,000.
• Issued 50,000 ordinary shares for P2,500,000.
• Purchased machinery and equipment for P900,000 cash.
• Paid P1,500,000 toward a bank loan.
• Collected 2,000,000 in advances.
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• Reduced accounts receivable by P800,000.

• Increased accounts payable P300,000.
What was Syracuse's net cash used in investing activities for 2021?
a. 5,150,000
b. 3,150,000
c. 5,900,000
d. 1,650,000
62. Rosette Company reported the following information in the year-end financial statements:
Capital expenditures 1,000,000
Capital lease payments 125,000
Income taxes paid 325,000
Dividends paid 200,000
Net interest payments 220,000
What total amount should be reported as supplemental disclosures in the statement of cash flows prepared using
the indirect method?
a. 545,000
b. 745,000
c. 1,125,000
d. 1,870,000
63. The following assets and liabilities appeared on the balance sheet of Manhattan Company:
Cash 300,000
Allowance for doubtful accounts 400,000
Inventory 1,000,000
Equipment 5,000,000
Accumulated depreciation 1,500,000
Patents and trademarks 500,000
Long-term receivables 4,000,000
Accounts payable 1,500,000
Accrued expenses 200,000
Long-term notes payable 1,000,000
Bonds payable 2,000,000
Premium on bonds payable 100,000
In preparing financial statements in a hyperinflationary economy, how much is the net monetary assets?
a. 1,600,000
b. 2,100,000
c. 2,600,000
d. 1,200,000
64. The following information pertains to Kansas City Company for the year 2021:
Monetary assets
January 1 250,000
December 31 300,000
Monetary liabilities
January 1 600,000
December 31 940,000
Increase in net monetary items as restated for hyperinflation 4,000,000

Decrease in net monetary items as restated for hyperinflation 4,700,000
General price index:

January 1 125
December 31 300
What is the gain or loss on purchasing power for the current year?
a. 900,000 gain
b. 900,000 loss
c. 2,180,000 gain
d. 2,180,000 loss
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FINANCIAL ACCOUNTING THEORIES
1. Philippine Financial Reporting Standards include

a. Philippine Financial Reporting Standards corresponding to IFRS issued by IASB.
b. Philippine Accounting Standards corresponding to IAS issued by IASC.
c. Philippine Interpretations corresponding to IFRIC and SIC Interpretations, and Interpretations developed by
PIC.
d. All of these
2. The purpose of the International Accounting Standards Board is to

a. Issue enforceable standards, which regulate the financial accounting and reporting of multinational
corporations.
b. Develop a uniform currency in which the financial transactions of companies throughout the world would be
measured.
c. Promote uniform accounting standards among countries of the world.
d. Arbitrate accounting disputes between auditors and international companies.
3. International financial reporting interpretations issued by IFRIC

a. Are considered authoritative and must be followed.
b. Cover newly identified financial reporting issues not specifically addressed.
c. Cover issues where unsatisfactory or conflicting interpretations have developed.
d. All of those are correct regarding international financial reporting interpretations.
4. Which is not a basic purpose of the Conceptual Framework?

a. To assist FRSC in developing accounting standards that represent GAAP in the Philippines.
b. To assist FRSC in reviewing and adopting existing international accounting standards.
c. To promulgate rules and regulations affecting the practice of the accountancy profession in the Philippines.
d. To assist auditors in forming an opinion as to whether financial statements conform with
accounting standards.
5. Proper application of accounting principles is most dependent upon the

a. Existence of specific guidelines.
b. Oversight of regulatory bodies.
c. External audit function.
d. Professional judgment of the accountant.
6. Accrual-basis net income is most useful for

a. Determining the amount of income tax a company should pay.
b. Predicting the short-term performance of an enterprise.
c. Predicting the long-term performance of an enterprise.
d. Determining the amount of dividends a company should pay.
7. What accounting concept justifies the use of accruals and deferrals?
a. Going concern assumption.
b. Corporate form of organization.
c. Consistency characteristic.
d. Arm's-length transactions.
8. External events are those that affect the entity and in which other entities participate. An example of external event
is
a. Manufacture of a product out of raw materials
b. Loss of property due to flood
c. Issuance of a promissory note in settlement of an account
d. Transfer of goods from one department to another
9. The transaction approach to determining income is a concept in which

a. Income is measured as the amount that an equity could consume during a period and be as well off at the end
of that period as it was at the beginning.
b. Market values adjusted for the effects of inflation or deflation are used to calculate income.
c. The financial statement effects of business events are classified as revenues, gains, expenses, and losses,
which are used to measure and define income.
d. Income equals the change in market value of the firm's outstanding common stock for the period.
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10. The amount of income reported for tax purposes

a. Is normally greater than the net income reported to stockholders.
b. Must be computed according to GAAP.
c. Is used to compute earnings per share.
d. May differ from the amount of income determined for financial reporting purposes.
11. The term "comprehensive income" as understood by users of financial information

a. Must be reported on the face of the income statement.
b. Includes all changes in equity during a period except those resulting from investments by and distributions to owners.
c. Is the net change in owners' equity for the period.
d. Is synonymous with the term "net income."
12. Which of the following characteristics may result in the classification of a liability as current?
a. Short-term obligations expected to be refinanced with long-term debt.
b. Debts to be liquidated from funds that have been accumulated and are reported as noncurrent assets.
c. Violation of provisions of a debt agreement.
d. Obligations for advance collections that involve long-term deferment of the delivery of goods or services.
13. This means, “applying a new accounting policy to transactions, other events and condition as of that policy had
always been applied”.
a. Retrospective application
b. Retrospective restatement
c. Prospective application
d. Prospective restatement
14. Nonadjusting events after the balance sheet date are accounted for by
a. Adjusting the amounts recognized in the financial statements.
b. Not adjusting the amounts recognized in the financial statements without disclosure
c. Not adjusting the amounts in the financial statements but with appropriate disclosure.
d. Recognizing the events directly in equity.
15. A related party transaction is a transfer of resources, services or obligations between

a. Related parties, regardless of whether a price is charged.
b. Related parties only when a price is charged.
c. Unrelated parties, regardless of whether a price is charged.
d. Unrelated parties on when a price is charged.
16. XYZ Company is a multidivisional corporation, which has both intersegment sales and sales to unaffiliated
customers. XYZ should report segment financial information for each division meeting which of the following
criteria?
a. Segment operating profit or loss is 10% or more of consolidated profit and loss.
b. Segment operating profit or loss is 10% or more of combined operating profit and loss of all company
segments.
c. Segment revenue is 10% or more of combined revenue of all the company segments.
d. Segment revenue is 10% or more of consolidated revenue.
17. What is appropriate presentation of a discontinued operation?

a. The amounts of revenue, expenses and pre-tax profit or loss from the activities attributable to the discontinued
operation during the current period and the related income tax expense are presented on the face of the
income statement side by side with the continuing operation.
b. Net profit or loss from the activities of discontinued operation is treated as component of equity.
c. Net profit or loss form the activities of the discontinued operation is accounted for as a change in accounting
policy.
d. The results from the discontinued operation shall be presented as a single amount net of tax below the income
from continuing operations.
18. Which of the following statements regarding discontinued operations is true?

a. The assets and liabilities of a disposal group classified as held for sale by an entity may be offset and shown as a
single item on the balance sheet of the entity.
b. The assets and liabilities of a disposal group of an entity must be shown separately in the asset and liabilities
sections of the balance sheet of the entity and cannot be offset.
c. An adjustment in a subsequent period to the selling price of a component of an entity sold must be reported as a
retroactive adjustment in the prior-period financial statements of the entity in which the discontinued operation was
reported.
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d. The gain or loss on disposal of a component of an entity classified as a discontinued operation need not be
disclosed separately from the loss from operations of the discontinued segment.
19. Which of the following is incorrect?

a. The operating cycle is always one year in duration.
b. The operating cycle is sometimes longer than one year in duration.
c. The operating cycle is sometimes shorter than one year in duration.
d. The operating cycle is a concept applicable both to manufacturing and retailing enterprises.
20. Which of the following statements regarding cash equivalents is correct?

a. A one-year treasury note could not qualify as cash equivalent.
b. All investment meeting the IASB’s criteria for cash equivalent must be reported as such.
c. The date a security is purchased determines its “original maturity” for cash equivalent classification purposes.
d. Once established, management’s policy for classifying items as cash equivalents cannot be changed.
21. Which of the following would not be classified as cash?

a. Personal checks
b. Travelers' checks
c. Cashiers' checks
d. Postdated checks
22. If there is evidence that an impairment loss on loans and receivables has been incurred, the amount of the loss is
equal to
a. Excess of the carrying amount of the loan receivable over the present value of the cash flows related to the
loan.
b. Excess of the present value of cash flows related to the loan over the carrying amount of the loan receivable.
c. Excess of the carrying amount of the loan over the principal amount of the loan.
d. Excess of the principal amount of the loan over its carrying amount.
23. On July 1, 2021, a company received a one-year note receivable bearing interest at the market rate. The face
amount of the note receivable and the entire amount of the interest are due on June 30, 2021. When the note
receivable was recorded on July 1, 2021, which of the following was debited?
I. Interest receivable
II. Unearned discount on note receivable
a. I only c. Neither I nor II
b. Both I and II d. II only
24. Which of the following would not be reported as inventory?

a. Land acquired for resale by a real estate firm
b. Stocks and bonds held for resale by a brokerage firm
c. Partially completed goods held by a manufacturing company
d. Machinery acquired by a manufacturing company for use in the production process
25. Which of the following types of interest cost incurred in connection with the purchase or manufacture of inventory
should be capitalized as a product cost?
a. Purchase discounts lost
b. Interest incurred during the production of discrete projects such as ships or real estate projects
c. Interest incurred on notes payable to vendors for routine purchases made on a repetitive basis
d. All of these should be capitalized.
26. Which of the following is not true of the perpetual inventory method?
a. Purchases are recorded as debits to the inventory account.
b. The entry to record a sale includes a debit to Cost of Goods Sold and a credit to Inventory.
c. After a physical inventory count, Inventory is credited for any missing inventory.
d. Purchase returns are recorded by debiting Accounts Payable and crediting Purchase Returns and Allowances.
27. A biological asset is a living animal or plant. The biological asset is measured at
a. Cost
b. Lower of cost or market
c. Higher of cost or market
d. Fair value less estimated cost to sell
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28. An entity had a plantation forest that is likely to be harvested and sold in 30 years. The income should be accounted
for in which of the following way?
a. No income should be reported annually until the first harvest and sale in 30 years.
b. Income should be measured annually and reported using a fair value approach that recognizes and measures
biological growth.
c. The eventual sale proceeds should be estimated and matched to the profit and loss account over the 30-year
period.
d. The plantation forest should be value every 5 years and the increase in value should be shown in the statement
of recognized gains and losses.
29. Which of the following is not an objective of accounting for transfers of financial assets?
a. To derecognize assets when control is gained
b. To derecognize liabilities when extinguished
c. To recognize liabilities when incurred
d. To derecognize assets when control is given up
30. A financial asset at fair value through profit or loss is

a. Classified as held for trading if it is acquired principally for the purpose of selling it in the near term.
b. A nonderivative financial asset with fixed or determinable payments and fixed maturity that an entity has the
positive intention and ability to hold to maturity.
c. A nonderivative financial asset with fixed or determinable payments and not quoted in an active market.
d. A nonderivative financial asset that is designated as available for sale or is not classified as loan and
receivable, held to maturity investment or financial asset at fair value through profit or loss.
31. All of the following are alternatives for an investor who receives stock rights except
a. Exercising the rights by purchasing additional stock.
b. Selling the rights.
c. Permitting the rights to expire.
d. Converting the rights into a cash dividend.
32. An entity acquired an investment in a subsidiary with the view to dispose of this investment within six months. The
investment in the subsidiary has been classified as held for sale and is to be accounted for in accordance with
PFRS. The subsidiary has never been consolidated. How should the investment in the subsidiary be treated in
the financial statements?
a. Purchase accounting should be used.
b. Equity accounting should be used.
c. The subsidiary should not be consolidated but the PFRS 5 should be used.
d. The subsidiary should remain off balance sheet.
33. The cash and noncash contributions of a venturer to the jointly controlled entity should be appropriately described
in the financial statements of the venturer as
a. Investment in jointly controlled entity.
b. Investment in joint venture.
c. Available for sale financial asset with determinable market value.
d. Available for sale financial asset with indeterminable market value.
34. A contract, traded on an exchange, that allows a company to buy a specified quantity of a commodity or a financial
security at a specified price on a specified future date is referred to as a(n)
a. Interest rate swap c. Futures contract
b. Forward contract d. Call option
35. In exchange for rights inherent in an option contract, the owner of the option will typically pay a price
a. Only when a call option is exercised.
b. Only when a put option is exercised
c. When either a call option is or a put option is exercised.
d. At the time the option is received regardless whether the option is exercised or not.
36. Which statement is incorrect concerning recognition of property, plant and equipment?
a. Most spare parts and servicing equipment are usually carried as inventory and recognized as expense when
consumed.
b. If the spare parts and servicing equipment can be used only in connection with an item of property, plant and
equipment and their use is expected to be irregular, they are accounted for as property, plant and equipment
and are depreciated over their useful life or useful life of the related asset, whichever is longer.
c. An aircraft and its engines need to be treated as separate depreciable assets if they have different useful lives.
d. Property, plant and equipment may be acquired for safety and environmental reasons in order for the
enterprise to obtain future economic benefits from its other assets.
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37. When a company purchases land with a building on it and immediately tears down the building so that the land
can be used for the construction of a plant, the costs incurred to tear down the building should be
a. Amortized over the estimated time period between the tearing down of the building and the completion of the plant.
b. Expensed as incurred.
c. Added to the cost of the plant.
d. Added to the cost of the land.
38. Which is not valid with respect to revaluation of property?

a. The entire class of property, plant and equipment should be revalued.
b. The items within a class of property, plant and equipment are revalued selectively.
c. A class of property, plant and equipment is a grouping of assets of similar use and nature.
d. A class of assets may be revalued on a rolling basis provided the revaluation is completed within a short period
of time and kept up to date.
39. 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.
40. What is the acceptable approach in accounting for government grants?

a. Government grants should be recognized as income over the periods necessary to match them with the
related costs.
b. Government grants should be credited directly to donated capital.
c. Government grants should be credited directly to retained earnings.
d. Government grants should be deferred and amortized over a maximum period of 20 years.
41. In accordance with generally accepted accounting principles, which of the following methods of amortization is
normally recommended for intangible assets?
a. Sum of the year’s digits c. Group composite
b. Straight-line d. Double declining balance
42. Which of the following represents the maximum amortization period mandated by current generally accepted
accounting principles for amortizable intangible asset
a. 10 years
b. 20 years
c. 40 years
d. No arbitrary cap on the useful life of amortizable intangible assets has been established.
43. Which statement is incorrect concerning goodwill?

a. Goodwill is amortized because its useful life is indefinite.
b. Goodwill shall be tested for impairment if there is an indication that impairment exists.
c. If there is an indication that goodwill may be impaired, the recoverable amount of goodwill shall be determined.
d. If the recoverable amount of the cash-generating unit to which the goodwill belongs is lower than the carrying
amount of the unit, the entity must recognize impairment.
44. Which is incorrect concerning the reversal of an impairment loss?
a. The reversal of the impairment loss shall be recognized immediately as an adjustment of the opening balance
of retained earnings.
b. The carrying amount of the asset shall be increased to its new recoverable amount.
c. The increased carrying amount of the asset due to a reversal of an impairment loss shall not exceed the
carrying amount that would have been determined, had no impairment loss been recognized in the prior years.
d. Any reversal of an impairment loss on a revalued asset shall be treated as a revaluation increase.
45. Liabilities are

a. Any accounts having credit balances after closing entries are made.
b. Deferred credits that are recognized and measured in conformity with generally accepted accounting
principles.
c. Obligations to transfer ownership shares to other entities in the future.
d. Obligations arising from past transactions and payable in assets or services in the future.
Mobile : 0927 283 8234
Telephone : (043) 723 8412
46. This is defined as “a structured program that is planned and controlled by management that materially changes
either the scope of the business of an entity or the manner in which the business is conducted”.
a. Restructuring
b. Recapitalization
c. Quasi-reorganization
d. Termination
47. Bonds usually sell at a discount when

a. Investors are willing to invest in the bonds at the stated interest rate.
b. Investors are willing to invest in the bonds at rates that are lower than the stated interest rate.
c. Investors are willing to invest in the bonds only at rates that are higher than the stated interest rate.
d. A capital gain is expected.
48. A troubled debt restructuring will generally result in a

a. Loss by the debtor and a gain by the creditor.
b. Loss by both the debtor and the creditor.
c. Gain by both the debtor and the creditor.
d. Gain by the debtor and a loss by the creditor.
49. When interest expense is calculated using the effective-interest amortization method, interest expense (assuming
that interest is paid annually) always equals the
a. Actual amount of interest paid.
b. Book value of the bonds multiplied by the stated interest rate.
c. Book value of the bonds multiplied by the effective interest rate.
d. Maturity value of the bonds multiplied by the effective interest rate.
50. What are the three types of period costs that a lessee experiences with finance leases?
a. Interest expense, amortization expense, executory costs
b. Amortization expense, executory costs, lease expense
c. Executory costs, interest expense, lease expense
d. Lease expense, executory costs, initial costs
51. Johnson Institute leased a new machine having an expected useful life of 12 years. The noncancelable lease term
is 10 years, and Johnson may exercise a purchase option at the end of the noncancelable term. The machine
should be capitalized by Johnson and depreciated over
a. 9 years.
b. 12 years.
c. 10 years.
d. 10 or 12 years at Johnson's option.
52. Which is the correct accounting treatment for a finance lease in the accounts of the lessor?
a. Treat as a noncurrent asset equal to the net investment in lease. Recognize all finance payments in income
statement.
b. Treat as receivable equal to the gross amount receivable on lease. Recognize finance payments in cash by
reducing debt.
c. Treat as a receivable equal to net investment in the lease. Recognize finance payments by reducing debt and
taking interest to income statement
d. Treat as a receivable equal to the net investment in the lease. Recognize finance payments in cash by
reduction in debt.
53. It is the discount rate that at the inception of the lease causes the sum of the present value of the minimum lease
payments and the unguaranteed residual value to equal the fair value of the leased asset.
a. Incremental borrowing rate
b. Effective rate
c. Legal rate
d. Implicit interest rate
54. In computing depreciation of a leased asset, the lessee should subtract

a. A guaranteed residual value and depreciate over the term of the lease.
b. An unguaranteed residual value and depreciate over the term of the lease.
c. A guaranteed residual value and depreciate over the life of the asset.
d. An unguaranteed residual value and depreciate over the life of the asset.
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Telephone : (043) 723 8412
55. I CARE Corporation follows the practice of paying all employees for vacation. The vacation pay is not vested, but
it carries over for one year if unused. Under GAAP, the obligation for earned but unused vacation should be
a. Accrued as a current liability.
b. Disclosed as a contingent liability.
c. Ignored until incurred.
d. Accrued or not accrued according to the judgment of management.
56. Prior service cost is amortized on a

a. Straight-line basis over the expected future years of service.
b. Years-of-service method or on a straight-line basis over the average remaining service life of active
employees.
c. Straight-line basis over the average remaining service life of active employees or 15 years, whichever is
longer.
d. None of the above
57. Which statement is incorrect concerning a defined benefit plan?

a. Current service cost is the increase in the present value of the defined benefit obligation resulting from
employee service in the current period.
b. If the benefits are not vested, past service cost is amortized on a straight-line basis over the period until the
benefits are vested.
c. The vested benefits are employee benefits that are not conditional on future employment.
d. The mandated method of determining the present value of the defined benefit obligation is the aggregate
method.
58. In rare circumstances, when a retirement benefit plan has attributes of both defined contribution plan and defined
benefit plan, it is deemed
a. Defined benefit plan
b. Defined contribution plan
c. Neither a defined benefit plan nor a defined contribution plan
d. Both a defined benefit plan and defined contribution plan
59. Taxable income of a corporation

a. Differs from accounting income due to differences in intraperiod allocation between the two methods of income
determination.
b. Differs from accounting income due to differences in interperiod allocation and permanent differences between
the two methods of income determination.
c. Is based on generally accepted accounting principles.
d. Is reported on the corporation's income statement.
60. An example of a "deductible temporary difference" occurs when

a. The installment sales method is used for tax purposes, but the accrual method of recognizing sales revenue is
used for financial reporting purposes.
b. Accelerated depreciation is used for tax purposes but straight-line depreciation is used for accounting purposes.
c. Warranty expenses are recognized on the accrual basis for financial reporting purposes but recognized as the
warranty conditions are met for tax purposes.
d. The completed-contract method of recognizing construction revenue is used for tax purposes, but the
percentage-of-completion method is used for financial reporting purposes.
61. On the statement of cash flows using the indirect method, an increase in the deferred tax liability would be shown
as
a. An addition to net income.
b. A deduction from net income.
c. An increase in investing activities.
d. An increase in financing activities.
62. When treasury shares are purchased for more than the par value of the stock and the cost method is used to
account for treasury shares, what account(s) should be debited?
a. Treasury shares for the par value and paid-in capital in excess of par for the excess of the purchase price
over the par value.
b. Share premium in excess of par for the purchase price.
c. Treasury shares for the purchase price.
d. Treasury shares for the par value and retained earnings for the excess of the purchase price over the par
value.
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Telephone : (043) 723 8412
63. What is the proper accounting for treasury share transactions?

a. On the repurchase of treasury shares, a gain or loss is recognized equal to the difference between the amount
at which the shares were issued and the repurchase price for the shares.
b. On reissuance of the treasury shares, a gain or loss is recognized equal to the difference between the previous
repurchase price and the reissuance price.
c. On repurchase or reissuance of previously repurchased own shares, no gain or loss is recognized.
d. Treasury shares are accounted for as financial assets
64. If share options are converted on March 31 of the current year

a. The potential ordinary shares (share options) are included in diluted earnings per share up to March 31, and
in basic earnings per share from the date converted to the year-end (both weighted accordingly).
b. The potential ordinary shares are not included in the diluted EPS calculation but included in basic EPS.
c. The potential ordinary shares are not included in the basic EPS but are included in diluted EPS.
d. The effects of the share option are included only in previous year’s EPS calculation.
65 For cash settled share-based transactions, an entity shall measure the goods or services received and the liability
incurred at the
a. Fair value of the goods and services received
b. Fair value of the liability
c. Either the fair value of the goods or services received or the fair value of the liability.
d. Neither the fair value of the goods or services received, nor the fair value of the liability.
66. For cash settled share-based payment transactions, until the liability is settled, the entity is required to remeasure
the fair value of the liability of each reporting date and at the date of settlement and any changes in fair value are
a. Recognized in profit or loss for the period
b. Included in retained earnings
c. Treated as component of equity
d. Not recognized
67. It is the date on which the entity and another party agree to a share-based payment arrangement, being when the
entity and the counter party have shared understanding of the terms and conditions of the arrangement.
a. Grant date c. Exercise date
b. Measurement date d. Balance sheet date.
68. The use of equity reserves under international accounting standards

a. Is strictly voluntary on the part of the management of a company.
b. Is based on whether a reserve is part of distributable or nondistributable equity.
c. Is primarily for the benefit of shareholders rather than creditors.
d. Results in the elimination of the retained earnings category from the total equity of a company.
69. Financing activities include all of the following, except

a. Cash proceeds from issuing shares or other equity instruments.
b. Cash repayments of amounts borrowed
c. Cash payments by a lessee for the reduction of the outstanding liability relating to the finance lease
d. Cash advances and loans made by financial institutions
70. Which of the following is true?

a. The FASB requires dividends paid to be classified as an operating activity.
b. The FASB requires interest paid to be classified as a financing activity.
c. The FASB allows dividends paid to be classified as an operating activity or as a financing activity.
d. The IASB allows dividends paid to be classified as an operating activity or as a financing activity.
71. Under PAS 29, hyperinflation is indicated by characteristics of the economic environment of a country which include
all of the following, except
a. The general population prefers to keep its wealth in nonmonetary assets or in relatively stable foreign currency.
b. The general population regards monetary amounts not in terms of the local currency but in terms of a relatively
stable foreign currency.
c. Interest rates, wages and prices are liked to a price index.
d. The cumulative inflation rate over three years is approaching or exceeds 80%.
THEEND

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No. 125 Brgy.

Balance at the beginning of the year 85,000

The accounts receivable consisted of the following items:

Customers’ accounts 1,420,000

Annual salary 2,000,000

How much should be reported as cash and cash equivalents at year-end?

January 1, 2021 December 31, 2021

2,200 dozens “Class A” @ P360 792,000

Quantity Unit Cost Total Cost

Manufacturing cost of goods shipped on consignment 5,000,000

How much is the gross profit on sales?

22. Bakersfield Company purchased the following securities during 2020:

Classification Cost Market Value

December 31, 2020 120 million

Research and development 2,000,000

1. What is total cost to be capitalized as equipment?

2. What is the total cost to be capitalized as patent?

What is the goodwill arising from the acquisition?

Internet domain name 3,000,000

Goodwill Net assets

Container deposits on January 1, 2021 from deliveries in:

Deposits for containers delivered in 2021 5,000,000

Deposits for containers returned in 2021 from deliveries in

Liability for refundable deposit – January 1 150,000

Present value of an annuity due of 1 at 10% for 6 periods 4.791

51. Pension plan information for Promises Company is as follows:

Projected benefit obligation – January 1, 2021 3,500,000

What is the defined benefit obligation at December 31, 2021?

Pension benefits paid 950,000

53. Pittsburgh Corporation has the following equity accounts:

Retained earnings 10,000,000

What is Pittsburgh’s amount of distributable equity?

December 31, 2020 December 31, 2021

Employee advances 24,000 36,000

Amortization of intangibles 300,000

• Reduced accounts receivable by P800,000.

Increase in net monetary items as restated for hyperinflation 4,000,000

General price index:

FINANCIAL ACCOUNTING THEORIES

1. Philippine Financial Reporting Standards include

2. The purpose of the International Accounting Standards Board is to

3. International financial reporting interpretations issued by IFRIC

4. Which is not a basic purpose of the Conceptual Framework?

5. Proper application of accounting principles is most dependent upon the

6. Accrual-basis net income is most useful for

9. The transaction approach to determining income is a concept in which

10. The amount of income reported for tax purposes

11. The term "comprehensive income" as understood by users of financial information

15. A related party transaction is a transfer of resources, services or obligations between

17. What is appropriate presentation of a discontinued operation?

18. Which of the following statements regarding discontinued operations is true?

19. Which of the following is incorrect?

20. Which of the following statements regarding cash equivalents is correct?

21. Which of the following would not be classified as cash?

24. Which of the following would not be reported as inventory?

30. A financial asset at fair value through profit or loss is

38. Which is not valid with respect to revaluation of property?

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

40. What is the acceptable approach in accounting for government grants?

43. Which statement is incorrect concerning goodwill?