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FAR First Preboard May 2023 Batch

Obligations and Contracts (Colegio de San Juan de Letran)

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The Professional CPA Review School

Main: 3F C. Villaroman Bldg. 873 P. Campa St. cor Espana, Sampaloc, Manila
 (02) 735 8901 / 0917-1332365
email add: [email protected]
Baguio Davao
2nd Flr. #12 CURAMED Bldg. Marcos Highway, Baguio City 3/F GCAM Bldg. Monteverde St. Davao City
 (074) 6200710  0917-1332365

FINANCIAL ACCOUNTING & REPORTING MAY 2023 BATCH

FIRST PRE-BOARD EXAMINATION FEB 12, 2023; 12NN-3PM

INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one
answer for each item by Shading the corresponding letter of your choice on the answer sheet
provided. STRICTLY NO ERASURES ALLOWED. Use Pencil No. 2 only.

1. Which of the following statements about background of accounting is (are) true?

I. The Accrual view in the analysis and recognition of accountable events is the reason why
the steps in the accounting cycle that Luca Pacioli designed is not exactly the same as
that which the accounting profession is adopting today.
II. A milestone for the accountancy profession in the current millennium is the uniform
adoption of international accounting standards by all countries of the world.
III. Adoption of uniform international accounting standards would have the advantage of
comparability and more relevance to external users’ financial information needs across
countries..
Statement I Statement II Statement III
A. False True True
B. False False True
C. True True False
D. True False True

2. The following are application of the art aspect of accounting except

A. Accountants use creative skill and judgment in the choice of the appropriate fair market
value to be used in the recognition and measurement of an asset acquired through a non-
reciprocal transfer.
B. Accountants interpret the information presented in the financial statements through
ratios and trend analysis.
C. External auditors attest to the fairness of presentation of financial condition and
operating results
D. Accountants use duality and equality principles in the analysis & recognition of
accountable events

3. Internal events are

A. not recorded since they happened only within the business
B. not recorded because they are not capable of money measurement
C. recorded because they involve changes in values of the elements of accounting
D. recorded because they involve exchanges of values between the entity and another party

4. To qualify as an accountable event that should be recognized in the books of account, there
must be three criteria to be met. Which of the following selected business documents of
Valentina Corporation that are presented to you by its management in 2022 will qualify as an
accountable event(s)?
A. A purchase commitment signed on December 28, 2022 for P500,000 worth of
merchandise inventory to be delivered on February 10, 2023.
B. A purchase order for P 400,000 worth of merchandise

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C. A Meralco bill for December 2022 amounting to P120,000 remains unpaid at year-end
2022.
D. A sales invoice for P400,000 under terms 2/10, n/30
E. A delivery truck purchased and delivered on January 1, 2022 under a 2-year annual
installment plan for P2,000,000 for which Valentina Corporation issued a 10% interest
bearing note.
F. Payment of 1st installment and interest on the purchased delivery truck, P1,200,000

The total monetary amount that should be recognized in the books of Valentina
Corporation as accountable events is
A. P4,220,000 B. P3,720,000 C. P1,020,000 D. P520,000

5. The accounting equation must remain in balance

A. Only when journal entries are recorded
B. Only at the time the trial balance is prepared
C. Only when formal financial statements are prepared
D. Throughout every step of the accounting cycle

6. Complete the sentence: Adjusting entries

A. Are often prepared after the statement of financial position date, but dated as of the
statement of financial position date.
B. Are prepared as a quality assurance review to ensure that the financial statements
conform to International Financial Reporting Standard (IFRS).
C. Allocate revenue and expense between current and future periods
D. Are all of (A), (B) and (C) above

7. The use of special journal system of recording transactions and events is an application of
which of the following qualities of financial reporting?
A. Timeliness
B. Faithful representation
C. Relevance
D. Completeness

8. Which TWO of the following areas of an accountant’s work are not part of financial
accounting?
1) Reporting on parent and subsidiary relationships and transactions
2) Reporting on installment sales and long-term construction contracts
3) Reporting on profitability trends as well as ratios and measurements
4) Reporting on the fairness of presentation of financial position and performance of an
entity in conformity with GAAP.
A. (1) and (2)
B. (3) and (4)
C. (1) and (3)
D. (2) and (3)

9. Which of the following statements DOES NOT APPLY to Financial Accounting?

A. It must comply with GAAP
B. It is primarily financial in nature
C. Information meets the specific needs of particular statement users
D. It emphasizes objective data

10. The most current development in enterprise reporting to SEC is the requirement of reporting
publicly on an entity’s significant economic, environmental and / or social impacts in
accordance with globally accepted standards. This is known as
A. Environmental accounting
B. Sustainability reporting

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C. Social responsibility reporting

D. Carbon accounting

11. Which of the following statements about financial accounting is incorrect?

I. Financial statements submitted to SEC by reporting entities may be stated in the
national language, or English, Spanish of any language of a country jurisdiction.
II. General purpose financial statements must be prepared by a certified public
accountant.
III. All significant information useful to users can be displayed on the face of the basic
financial statements
IV. Financial accounting is a social science that can be influenced by changes in the legal,
political business and physical environments.
A. Statement I and II only
B. Statements II and III only
C. Statements II, III and IV
D. Statements III and IV only

12. Which of the following is the objective of financial statements?

A. To prepare and present financial statements and attached Notes thereto in accordance
with all applicable Standards and Interpretations.
B. To prepare and present relevant, reliable, comparable and understandable information
to investors and creditors.
C. To provide information about the finacial position, financial performance and changes
in financial position of an entity that is useful to a wide range of users in making
economic decisions.
D. To comply with the reportorial requirements of government regulatory bodies like the
SEC, BIR and Insurance Commission

13. The basic financial statements under present GAAP, include all of the following except:
A. Statement of Changes in Financial Position
B. Statement of Comprehensive Income
C. Statement of Cash Flows
D. Statem1ent of Changes in Equity

14. The following Statements pertain to the Conceptual Framework for the Preparation and
Presentation of Financial Statements. Which is (are) FALSE
Statement 1: The Conceptual Framework is concerned with general purpose financial
statements including consolidated financial statements.
Statement 2 : The Conceptual Framework is intended to establish the objectives and
concepts for use in developing standards of financial accounting and
reporting.
Statement 3: The Conceptual Framework has the highest level of authority in the
application of accounting standards of financial accounting and reporting.
Statement 4: If there is a conflict between a provision of the Conceptual Framework and
that of a Financial Accounting Standard, the Conceptual Framework
should prevail
A. Only Statement 1 is false
B. Only Statement 2 and 3 are false
C. Statements 3 and 4 are false
D. All of the Statements are false

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15. Which of the following statements about the Philippine accounting standard – setting body is
TRUE?
A. It is currently called the Financial and Sustainability Reporting Standards Council
(FSRSC) and has the authority with respect to the financial accounting standards in the
Philippines
B. It has the power to issue and revoke the CPA license of erring CPA profession
C. It has expanded its Council membership to include representation from the Insurance
Commission and the Commission on Climate Change
D. It supervises only one Committee, that is, The Philippine Interpretations Committee

16. Generally accepted accounting principles that are being currently implemented in the
Philippines comprise
A. Only one Financial Reporting framework
B. Two Financial Reporting Frameworks
C. Three Financial Reporting Frameworks
D. More than three Financial Reporting Frameworks

17. Which of the following statements about “due process” in accounting standard setting and the
Conceptual Framework is (are) false?
I. The exposure draft issued by the accounting standard-setting body before an
accounting standard is approved for implementation gives CPA professionals the
opportunity to participate in the standard-setting process.
II. After the FRSC has approved an accounting standard, it should be automatically
implemented by all reporting enterprises in the Philippines.
III. The Conceptual Framework constitutes the accounting laws of the accountancy
profession and violations of its provisions will be meted corresponding sanctions by
the regulatory bodies
A. I and II are false
B. II and III are false
C. I and III are false
D. All Statements are false

18. Which of the following statements about Philippine GAAP is (are) false?
I. The Philippine Interpretations Committee issuances that pertain only to controversial
and newly-emerging issues in the Philippines are an indication that the IFRSs (or
PFRSs) are principles-based.
II. The Securities and Exchange Commission (SEC) regulates all commercial and not-
for-profit reporting enterprises except micro entities.
III. All reporting enterprises entities in the Philippines including regulated entities are
required to follow full Philippine Financial Reporting Standards (PFRSs) in the
preparation of financial statements.
A. I only
B. II only
C. II and III only
D. I, II, and III

19. Under Philippine Securities and Exchange Commission rules for financial reporting, which of
the following is matched correctly with its reporting framework?
Entity Reporting Framework
(1) Perfect Scoop, with Assets of
P2.8 M and Liabilities of P 1 M (1) PFRS for Small Entities
(2) MBC Manufacturing Company: Total Assets, P 450 M (2) Full PFRS and Interpretations
(3) Ever Night Inc.: Total Assets of P110 M (3) PFRS for SME
A. (1) and (2) C. (1) and (3)
B. (2) and (3) D. (1), (2) and (3)

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20. Which of the following statements about the General Purpose Financial statements is (are)
correct?
I. They show the results of the stewardship of management for the resources entrusted
to it by the capital providers.
II. They are the primary responsibility of both management and the external auditor
after audit.
III. They are prepared at least annually and are directed to the common information
needs of a wide range of statement users.
IV. The financial statements prepared by banks, cooperatives and insurance companies
comply with regulatory accounting principles rather than the generally accepted
accounting principles of the accountancy profession.
A. Statements I and II only
B. Statements I and III only.
C. Statements I, III and IV
D. Statements II, III and IV

21. All of the following will justify the recognition of an asset by an accounting entity except when
A. It acquires legal ownership of the asset
B. It acquires legal control of an asset
C. It has exclusive knowledge and control of expected benefit flow even without legal right
D. It acquires physical possession of the asset with or without legal ownership or legal
control

22. Which of the following types of acquisition of asset and measurement base is (are) not properly
and logically matched?
Mode acquisition Measurement base
(1) Acquisition of land invested by the owner (1) Fair value of the land
(2) Acquisition of equipment by cash purchase (2) Cost
(3) Acquisition of asset by non –monetary exchange of
no commercial value (3) Fair value
A. Only (1) is properly and logically matched
B. Only (2) is properly and logically matched
C. 1) and (2) are properly and logically matched
D. (1), (2) and (3) are all properly and logically matched

23. Which of the following accounting measurements may be made with the greatest degree of
objectivity
A. Bad debts expense for the year
B. Cost of land owned as at year-end
C. Net Income
D. Appraised value of land at year-end

24. In which step/s of the accounting cycle is GAAP and the qualitative objectives most applied?
A. Journalizing and adjusting the books
B. Journalizing and preparing closing entries
C. Posting and preparing trial balance
D. Preparing the financial statements

25. The financial information qualities of faithful representation, verifiability, and freedom from
error are typically applied in which of the following steps of the accounting cycle?
A. Journalizing
B. Posting
C. Trial Balance preparation
D. Adjusting entries

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26. Which of the following statements is not a reason for preparing end-of-period adjusting entries?
A. Some transaction extend beyond one accounting period.
B. They help to properly measure the period’s net income or net loss
C. Mixed accounts should be split into their real and nominal elements.
D. Errors discovered at the end of the period should be corrected in order to generate more
reliable financial reports

27. Which of the following statements about bookkeeping systems is (are) true?
I. Double - entry bookkeeping is the generally acceptable method of bookkeeping
because it offers more complete, more relevant and reliable measurement of financial
performance than single-entry bookkeeping
II. Under single-entry bookkeeping, net income (loss) is computed by determining the
increases in assets and liabilities that are not owner-related.
III. Double-entry bookkeeping is sometimes known as transactions approach of
accounting for assets, liabilities, equity, revenue and expenses.
A. Only III is true
B. I and II are true
C. II and III are true
D. I, II and III are true

28. Which of the following bases of income and expense recognition is used in accounting for
revenue and expenses under single-entry bookkeeping>
A. Cash basis
B. Accrual basis
C. Modified Cash basis
D. None of A, B, and C is used

29. Which of the following statements about the voucher system is FALSE?
A. A voucher is a written authorization prepared for each check written
B. A voucher need not be prepared for a purchase on account since it will not require an
immediate cash payment.
C. Since the voucher system is costly to apply, repetitive, and time-consuming it is not
recommended for use in accounting for cash disbursements
D. The voucher system offers a more effective internal control than the non-voucher system.

30. Which statement is CORRECT relative to cash disbursements?

A. Cash disbursements can be taken from daily cash collection
B. Disbursements are made by check except petty cash fund disbursement
C. Cash disbursement may be supported with checks issued without vouchers.
D. Any employee can handle accountable vouchers and checks

31. Which of the following is among the “primary users” of general – purpose financial
statements?
A. Owners/investors and employees
B. Owners/investors, customers and government agencies
C. Owners/investors, lenders and suppliers and trade creditors
D. Owners/investors, creditors and government agencies such as SEC and BIR

32. Which of the following statements does not pertain directly to the Going-Concern
assumption of accounting?
A. Assets and liabilities should be classified in the statement of financial position as to
“current” or “non-current”
B. Threats to the ability of an entity to operate as a going concern, such as a troubled-debt
restructuring arrangement should be disclosed in the notes to financial statements
C. Income and expenses should be recognized as these events occur, even if cash is not yet
received or paid.

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D. Conceptually, the Accrual assumption is related to the Going Concern assumption

33. Under the revised Conceptual Framework, which of the following are among the enhancing
qualitative objectives of financial accounting?
A. Relevance D. Faithful representation G. Comparability
B. Neutrality E. Verifiability H. Freedom from error
C. Understandability F. Timeliness I. Completeness
A. A, D, and F
B. C, E, F and G
C. E, G, H
D. C, D, E and F

34. The concept of verifiability is complied with when an accounting transaction occurs that
A. involves an arms-length transaction between two independent parties or interests
B. furthers the objectives of the company
C. is promptly recorded in a fixed amount of pesos
D. allocates revenues or expense items in a rational and systematic manner

35. Which one of the following is not an essential characteristic of an asset?.

A. It provides the entity a right to probable future benefits
B. It is a result of a past activity
C. It is acquired at a cost and is exchangeable
D. It is measurable in terms of money

36. Which of the following basic accounting assumptions is threatened by the existence of severe
inflation in the economy?
A. Monetary unit assumption.
B. Periodicity assumption.
C. Economic entity assumption.
D. Going concern assumption

37. Which of the following basic assumptions of accounting is directly related to sustainability
reporting and care for Mother Earth?
A. Periodicity assumption
B. Going concern assumption
C. Accounting entity assumption
D. Measurement of Economic Resources and Obligations

38. Which of the following is an ethical concern of accountants?

A. Industry practices
B. Conservative accounting
C. Earnings manipulation
D. Providing real-time financial statement information

39. The IASB conceptual framework includes a cost-benefit constraint (which is also the same as
the Materiality constraint or principle of convenience). This states that the benefits of the
information must be greater than the cost of providing it. Which of the following is not a
proper application of the cost-benefit constraint?
A. The cost of an inexpensive waste can that has a useful life of 5 years is charged to expense
upon acquisition.
B. The Board of Directors of Iron Heart Corporation passed a resolution that the entities
capitalization threshold for asset recognition at P 50,000.
C. Before closing its books in 2022, Mea Culpa Corporation discovered an unrecorded sales
invoice of 2021 amounting to P10,000. Since the amount is immaterial compared the 2021
Gross Sales of P25,000,000 no correcting entry was made in 2022.

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D. An extensive repairs amounting to P3,000,000 at the end of the 7 th year of a building with
a life of ten years was charged to expense. After the repairs, it was estimated that the
building has a remaining life of three years.

40. Ms. D. Mawari, the accountant of Ala Chamba Corporation discovered a purchase invoice for
some small items of office equipment amounting to P15,000 which was omitted from the
books. She was already doing the summarizing stage of the recording process and has prepared
the financial statements for submission to management. She did not see the need to include the
omitted transaction in the records as she reasoned that the amount involved is not material.
The total assets of the corporation as of balance sheet date is P 500,000,000. This situation is
A. An application of the materiality principle
B. A violation of the materiality principle
C. An application of cost – benefit constraint in financial reporting
D. A violation of the recognition principle for accountable events

41. Daenerys Company uses the cash basis system for recording purposes. Total revenues and
expenses of P700,000 and P450,000 respectively were initially computed by Daenerys Company
based on its records. The following information were provided:
12/31/2023 12/31/2024
Accounts receivables 100,000 150,000
Inventory 120,000 100,000
Prepaid expenses 60,000 40,000
Accounts payable 140,000 180,000
Accrued expenses 40,000 60,000

The net income (loss) to be reported by Daenerys Company in accordance with generally
accepted accounting principles is
A. 200,000
B. 320,000
C. (180,000)
D. (300,000)

42. Cersei Company started operations in 2023 and provided you with the following information:
• On April 1, 2023, Cersei Company paid P240,000 as rentals for two years starting April
1, 2023 which was booked under a nominal account.
• Received P420,000 from Headey Company for services to be rendered by Cersei
Company for over a period of one year starting June 1, 2023 which was recorded initially
under service income.
• Supplies were purchased amounting to P80,000 and were recorded under Prepaid
supplies. Based on a count made, the remaining supplies at yearend amounted to
P30,000.
• Initial calculations resulted to a net income of P210,000
Cersei Company uses the calendar year for reporting purposes. If no adjustments are made, the
net income for the year would be
A. Net income over by 75,000
B. Net income under by 75,000
C. Net income over by 55,000
D. Net income under by 55,000

43. The trial balance of Sansa Company did not balance. The debit column totaled P118,000 while
the credit column totaled P115,000. An examination shows these errors:
• Collection from a credit customer was recorded (both dr and cr) at P57,000 instead of
P75,000
• Purchases of inventory units on account was recorded as P35,000 instead of P53,000

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• Payment for rent in advance of P15,000 was recorded as a debit to rent expense and a
credit to cash
• Debit footings to accounts payable were understated by P6,000
• Credit footings to advertising expense were understated by P9,000.

The correct trial balance totals should be

A. 127,000
B. 133,000
C. 142,000
D. 136,000

44. In determining the amount to be reported as cash and cash equivalents by Arya Company in its
December 31, 2023 balance sheet, the following items were identified:
Cash on hand 250,000
Cash in bank 2,600,000
Petty cash fund 50,000
• Cash on hand included the following:
• Check from Maisie, a customer dated December 30, 2023, P40,000
• Check from Williams, a customer dated January 2, 2024, P50,000
• A postal money order, P20,000
• Cash in bank included the following:
• PNB checking account, a compensating balance for P500,000 is restricted in
relation to a long-term loan granted last October 2023
• BPI checking account which has a credit balance of P200,000
• BDO, per ledger balance, a check for P120,000 remains outstanding as of
December 31, 2023.
• Petty cash fund included the following:
• Unreplenished receipts, P20,000
• Check from Stark, an employee in payment for a cash advance made of P5,000

The amount to be reported under cash and cash equivalents in the December 31, 2023
balance sheet of Arya Company is
A. 2,530,000
B. 2,410,000
C. 2,330,000
D. 2,325,000

45. The following were provided by Tyrion Company for the month of October
• Total bank credits for the month of October P650,000
• Total book debits for the month of October P691,000
• Credit memos issued by the bank in September, P60,000
• Credit memos issued by the bank in October, P90,000 which includes P15,000
representing a correction for the erroneous debit made against Tyrion Company’s
account last September
• A deposit on October 13, for P52,000 was recorded in the books as P25,000.
• A deposit on October 22, for P26,000 was recorded in the books as 62,000.
• A deposit in October by Tyrion Company for P20,000 was recorded by the bank to
Tyrone Company’s account
• A deposit in October by Trion Company for P40,000 was recorded by the bank to
Tyrion Company’s account
• Deposit in transit at the beginning of October, P80,000

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The deposits in transit at the end of October is

A. 162,000
B. 147,000
C. 180,000
D. 122,000

46. The following were provided by Jaime Company for the month of June.
• Total credits to Cash in all journals during June, P790,000
• Checks & charges recorded by the bank in June, P850,000
• Debit memos issued by the bank in June, P85,000 which includes P25,000 as a
correction for the erroneous credit to Jaime Company’s account in May
• A debit memo for a customer’s NSF check returned in May and redeposited in June
which Jaime Company did not record in May, as well as, in June, P35,000
• A debit memo for a customer’s NSF check returned in May which was recorded by
Jaime Company only in June, 15,000
• Outstanding checks as of June 1, P120,000
• Checks issued by Jaime Company was recorded by the bank against Jaymie Company in
June, P45,000.
• Checks issued by Jaimie Company was recorded by the bank against Jamie Company in
June, P20,000
• Check for P64,000 written in June 28, was recorded in the disbursements journal as
P46,000
• Check for P25,000 written on June 30, was recorded in the disbursements journal as
P52,000

The outstanding checks at the end of June is

A. 96,000
B. 71,000
C. 114,000
D. 146,000

47. In preparing a two-date (March and April) bank reconciliation for Jon Aegon Company, the
following items were identified:
• Erroneous bank credit in March, corrected by the bank in April by issuing a debit memo,
P30,000
• Erroneous bank debit in March, corrected by the bank in April by issuing a credit memo,
P50,000
• An erroneous debit in April by the bank for 60,000 was corrected by the bank in April
by issuing a credit memo
• Outstanding checks: March 31, P90,000; April 30, P50,000
• Deposits in transit: March 31, P120,000; April 30, P150,000
The net adjustment to the total bank debits is
A. Decrease of 130,000
B. Decrease of 100,000
C. Decrease of 80,000
D. Decrease of 70,000

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48. In preparing a two-date (March and April) bank reconciliation for Bran Company, the following
items were identified:
• A check for P20,000 in March was recorded by Bran Company as 2,000. A correction
was made by Bran Company in April
• A check issued for P12,000 in March was recorded as P21,000 by Bran Company. A
correction was made in April by Bran Company by reducing the recorded disbursements
in April.
• A deposit for P3,000 in April was recorded in the receipts as P30,000. A correction was
made by Bran Company likewise in April by reducing the recorded receipts.
• Credit memos: March 31, P8,000; April 30, P15,000
• Debit memos: March 31, P23,000; April 30, P19,000
The net adjustment to the total book credits is
A. Decrease of 13,000
B. Increase by 5,000
C. Decrease by 5,000
D. Decrease by 22,000

49. Rickon Company’s accounts receivable balance and allowance for credit losses at January 1,
2023 were P1,900,000 and P115,000 respectively.
During 2023, Rickon Company reported sales of P7,500,000. 25% of sales in 2023 were cash
sales and the rest were on account under an 8/10, n/30 credit term. Sales returns amounted to
P60,000 for cash sales in which the customers were refunded and P120,000 for credit sales.
Total debit to cash during the year P6,675,000 which includes recoveries of previously written-
off accounts totaling P200,000. 80% of the collections from its current customers were made
within the discount period.
Receivables written-off in 2022, P150,000
Rickon Company based on an expected credit loss schedule, recorded P80,000 as bad debts
expense.
The receivables amount to be reported by Rickon Company in its December 31, 2023 balance
sheet is
A. 2,090,000
B. 2,410,000
C. 2,255,000
D. 2,575,000

50. On April 1, 2023, Robb Company sold land and received a 3-year, noninterest bearing note with
face amount of P2,000,000. The carrying value of the land was P1,200,000. The fair value of
the land and the market of the note were not determinable. The prevailing interest rate for a
similar transaction is 12%
PVF of a SS PVF of an OA
12% 12%
1 period 0.89286 0.89286
2 periods 0.79719 1.69005
3 periods 0.71178 2.40183
4 periods 0.63552 3.03735

The interest income included in the 2024 income statement is

A. 170,827
B. 186,202
C. 191,326
D. 240,000
.

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51. On July 1, 2023, Hodor Company sold land and received a 4-year, noninterest bearing note with
a face amount of P3,000,000. The note shall be collected in four equal instalments starting June
30, 2024. The carrying value of the land was P2,000,000. The fair value of the land and the
market of the note were not determinable. The prevailing interest rate for a similar transaction
is 9%.
PVF of a SS PVF of an OA
9% 9%
1 period 0.91743 0.91743
2 periods 0.84168 1.75911
3 periods 0.77218 2.53129
4 periods 0.70843 3.23972
The total receivable to be reported in the December 31, 2024 balance sheet is
A. 2,250,000
B. 2,069,333
C. 1,983,902
D. 1,898,471

52. Khal Company is contemplating on selling its land. The carrying value of the land was
P2,000,000 in which the current fair value was P3,800,000. Khal Company received an offer
from Drogo Company, wherein Drogo Company will pay five equal amounts starting at the
date of sale. Khal Company would like to earn a return rate of 10% to which Drogo Company
agrees.
The annual collections to start at transaction date is
A. 760,000
B. 911,300
C. 1,002,430
D. 1,198,789

53. On January 1, 2023, Viserys Company sold a piece of land to Targaryan Company. The
agreement was for Viserys Company to receive four equal amounts of P603,842 representing
principal and interest at the rate of 8% starting December 31, 2023. The carrying value of the
land was P1,750,000.

The total interest income that Viserys Company will earn over a four-year period is
A. 160,000
B. 415,366
C. 560,000
D. 665,366

54. On April 1, Catelyn Company assigns under a notification basis specific accounts amounting to
P6,000,000 to Stark Finance. Stark Finance shall advance to Catelyn Company 80% of the
accounts assigned, less a finance charge of 1.50% of the loan amount

On May 2, Catelyn Company received a statement that Stark Finance had collected P3,000,000
of these accounts, and had made an additional charge of 1.50% of the total accounts
outstanding as of April 30. This additional charge shall be deducted from the remittance due to
Catelyn Company

On June 5, Catelyn Company received a statement from Stark Finance together with a check.
The statement indicated that Stark Finance collected an additional P2,000,000 and had made a
further charge of 1.50% of the balance outstanding as of May 30
The amount on the check received by Catelyn Company is
A. 200,000
B. 185,000
C. 155,000
D. 140,000

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55. On April 1, 2023, Ned Company received a note with a face amount of 3,000,000. The note
carries a rate of 10%. The principal amount of P500,000 plus accrued interest shall be collected
on September 30, 2023 and March 31, 2024.
On August 1, 2023, Ned Company received a 10-month, P1,200,000 note carrying an interest
rate of 9%.
On December 1, 2023, Ned Company in need of cash discounted the notes at 12%.
The amount of loss included in the 2023 income statement as a result of the sale of the notes is
A. 19,400
B. 36,400
C. 48,400
D. 79,400

56. On July 1, 2023, Robert factored with recourse P400,000 of its accounts receivable to
Baratheon Financing at a fee of 3%. A hold back of 2% of the accounts factored is withheld for
returns and discounts. The fair value of the recourse agreement was P15,000. Control over the
receivables were transferred to Baratheon Finance.

On October 1, 2023, Robert factored with recourse P600,000 of its accounts receivable to
Joffrey Financing at a fee of 6%. A hold back of 10% of the accounts factored is withheld for
returns and discounts. The fair value of the recourse agreement was P20,000. Control over the
receivables were transferred to Baratheon Finance.

On September 30, 2023, Baratheon Finance informed Robert Company that it has collected all
the receivables and that the total discounts granted was P4,000.
The amount of loss included in the 2023 income statement as a result of the factoring activities is
A. 0
B. 42,000
C. 62,000
D. 77,000

57. On January 1, 2023, Jorah Financing granted a 4-year, P3,000,000, 12% loan to Samwell
Company.
Origination fees incurred and charged to Samwell Company amounted to P245,000, while the
direct origination cost to Jorah Financing amounted to P70,177 giving it a yield of 14%
The loan receivable amount reported in the December 31, 2023 balance sheet is
A. 2,768,673
B. 2,825,177
C. 2,860,702
D. 2,901,200

58. On April 1, 2023, Mormont Financing granted a 4-year, P2,000,000, 9% loan to Tarly Company.
Origination fees incurred and charged to Tarly Company amounted to P35,500 while the direct
origination cost to Mormont Financing amounted to P101,743 giving it a yield of 8%
The interest income to be included in the 2023 income statement is
A. 123,975
B. 128,235
C. 165,299
D. 170,979

59. Luwin Bank loaned Aemon Company P5,000,000 on January 1, 2020. The terms of the loan
were payment in full on December 31, 2026 plus annual interest payment at 9%.

Aemon Company was able to pay its interest obligations for the 2020 and 2021.
Due to an outbreak which causes Aemon Company’s sales to drop in 2022, Aemon Company
fails to pay its interest obligation in 2022.

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The continuing trend led to Luwin Bank to assess the status of its receivables to Aemon
Company. On December 31, 2023, a concession between the two entities which included the
following terms:
• All accrued interest shall be paid together with the principal on December 31, 2026
• Interest for 2024 to 2026 shall be based on a revised rate of 7% which will likewise be
settled in its entirety on December 31, 2026

The loan impairment loss to be recognized by Luwin Bank on December 31, 2023 is
A. 533,325
B. 683,325
C. 994,117
D. 1,494,117

60. Alliser Company based on a physical count made reported an inventory balance of P5,000,000.
Further inspection of the records revealed the following items:
• Goods sent out on consignment to Lancel Company, P500,000. Freight cost on goods
sent out to Lance Company on consignment totaled to P100,000. Lance Company was
instructed to sell the goods at a markup of 20%. At yearend, 30% of the goods remained
unsold
• Goods held on consignment from Osha Company included at P150,000. Osha Company
was instructed to sell the goods at a 25% markup.
• Invoice received on December 28, 2023 for goods costing P100,000 shipped by
Barristan Company, FOB shipping point on December 27, 2023, which were still in
transit at December 31, 2023
• Invoice received on December 30, 2023 for goods costing P300,000 shipped by Tyrell
Company FOB destination on December 27, 2023 which were still in transit at
December 31, 2023
The amount reported under inventory in the December 31, 2023 balance sheet is
A. 4,830,000
B. 5,130,000
C. 5,230,000
D. 5,280,000

61. Gendry Company started operations in December 2023. The following information in relation
to its inventory is as follows
Beginning 1 4,000 units @ P 150
Purchase 8 1,500 units @ P 180 Sale 4 3,000 units
15 1,000 units @ P 200 20 2,200 units
29 1,500 units @ P175 30 1,000 units
Which of the following statements is/are true?
A. The ending inventory under average perpetual is higher by 16,978 as compared to average
periodic
B. The ending inventory under average perpetual is lower by 16,978 as compared to average
periodic
C. The cost of sales under average perpetual is 1,032,688
D. The cost of sales under average periodic is 1,015,709

62. Varys Company’s first three months show purchases as follows

October November December
Number of units 15,000 18,000 13,000
Cost P 189,000 P 247,500 P 185,250
Inventory balance at the end of November using LIFO is valued at P427,425
The cost of sales under the FIFO method is
A. 220,500
B. 456,300

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C. 236,880
D. 439,920

63. Loras Company requires an estimate of the cost of goods lost by fire on March 15. Merchandise
on hand on January 1 was P980,000; Purchases since January 1 were P2,120,000; freight-in,
P150,000; purchase discount and allowances, P70,000. Sales are made at a margin rate of 30%
and totaled P3,120,000 to March 15, discounts availed of up to that date amounted to P125,000,
while returns totaled P80,000. Goods costing P180,000 were left undamaged by the fire. Further
inquiry revealed that the recorded purchases included goods still in transit totaling P250,000 of
which P150,000 were under fob shipping point and P100,000 under fob destination. The
remaining goods that were destroyed and were sold for scrap for P30,000.

The estimated inventory at the time of the fire is

A. 952,000
B. 1,052,000
C. 742,000
D. 842,000

64. Bronn Company reports the following data for the month of April
Cost Retail
Beginning P 360,000 P 600,000
Purchases 2,250,000 3,000,000
Freight-in 60,000
Purchase returns 20,000 30,000
Purchase discounts 15,000
Transfer – in 185,250 285,000
Transfer – out 120,000 150,000
Mark ups 115,000
Mark up cancellation 25,000
Markdown 45,000
Markdown cancellation 15,000
Sales 3,300,000
Sales discounts 60,000
Sales returns 90,000
Employee discounts 45,000
Loss due to shrinkage 35,000
The cost of sales under the average retail method is
A. 2,359,581
B. 2,362,274
C. 2,349,028
D. 2,402,613

65. Arryn Company requires an estimate of the cost of goods lost by fire on March 15. Merchandise
on hand on January 1 was P800,000; Purchases since January 1 were P1,960,000; freight-in,
P150,000; purchase discount and allowances, P70,000. Sales are made at a markup rate of 25%
and totaled P2,970,000 to March 15, discounts availed of up to that date amounted to P125,000,
while returns totaled P80,000. Goods with a selling price of P180,000 were left undamaged by
the fire. Further inquiry revealed that the recorded purchases included goods still in transit
totaling P180,000 of which P80,000 were under fob shipping point and P100,000 under fob
destination. The remaining goods that were destroyed and were sold for scrap for P30,000.

The inventory loss due to the fire is

A. 138,000
B. 174,000
C. 254,000
D. 204,000

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66. Shae Company started a new promotional program. For every 10 box tops returned to Shae
Company, customers will receive a basketball. Shae Company estimates that only 60% of the
box tops reaching the market will be redeemed. Additional information is as follows:
Units Amount
Sales of product 100,000 P 30,000,000
Basketballs purchased 5,500 4,125,000
Basketballs distributed 4,000
The estimated liability associated with this promotion at yearend is
A. 1,125,000
B. 1,500,000
C. 3,000,000
D. 375,000

67. Greyjoy Company is planning to sell its business. Records show that cumulative net earnings
for the past 5 years amounted to P720,000, including a non-recurring gain of P50,000. The
appraised value of Greyjoy Company’s net assets was P1,150,000.
Per agreement with a Theon Company, the selling price will include goodwill determined by
capitalizing normal average net earnings at 10%.
The implied goodwill is
A. 190,000
B. 290,000
C. 390,000
D. 0

68. Brienne Company. declared a 5% stock dividend on its 10,000 issued and outstanding shares of
P20 par value common stock, which had a fair value of P50 per share before the stock dividend
was declared. This stock dividend was distributed 60 days after the declaration date
Brienne’s current liabilities increase as a result of the stock dividend declaration by
A. 0
B. 5,000
C. 10,000
D. 25,000

69. In your review of the cash receipts journal, the following items in relation to Davos Company
were identified:
• P80,000 in lieu of a 15% stock dividend from Tywin Company
• P45,000 as liquidating dividend from Stannis Company
• P65,000 cash dividend from Balon Company
The total amount reported as dividend income for the year is
A. 65,000
B. 125,000
C. 145,000
D. 190,000
70. On January 1, 2023 Ygritte Company acquired as a long-term investment a 20% ordinary share
interest in Gilly Company. Ygritte Company paid P7,000,000 for this investment when the fair
value of Gilly Company’s net asset was P35,000,000. Ygritte Company can exercise significant
influence over Gilly Company’s operating and financial policies. For the year December 31,
2023, Gilly Company reported net income of P4,000,000 and declared cash dividend of
P1,600,000.
The investment income included in the 2023 income statement is
A. 480,000
B. 800,000
C. 320,000
D. 0
efl/mft

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