ACCA106

1. Property, plant and equipment are defined as

D. Tangible assets held for use in the production or supply of goods or services, for rental to
others, or for administrative purposes…..

2. Which is not an essential characteristic of property, plant and equipment?

D. The property, plant and equipment are subject to depreciation

3. An item of property, plant and equipment shall be recognized as an asset when

D. It is probable that future economic benefits will flow to the entity and the cost of the asset
can be measured reliably

4. Major spare parts and standby equipment which are expected to be used over a period or
more than one year shall be classified

A. property, plant and equipment

5. If a spare parts and servicing equipment can be used only in connection with an item of
property plant and equipment this air content for us property plant and equipment and
depreciated over

D. their useful life or the useful life of the related asset whichever shorter

6. Under the cost model, an item of property plan that equipment shall be carried
subsequently at
C. Cost less accumulated depreciation and any accumulated impairment loss

The cost of an item of property, plant and equipment comprises all of the following except
D. initial estimate of the cost of dismantling and removing the item and restoring the site,
obligation for which the entity does not incur when item was acquired

Cost directly attributable to bringing the asset to the location and condition for the intended
use include all of the following except
A. cost of employee benefits not arising directly from acquisition of property plant and
equipment

Costs that are expensed immediately include all of the following except
D. Cost of testing the asset

Costs that are expensed immediately include all of the following except
D. professional feet at racing directly from the acquisition of property plant and equipment
It is depressant value of the cash flows and entity expects to arise from the containing use of
an asset and from the disposal at the end of useful life or expect to incur when setting a
liability
A. Entity specific value

The cost of an item of property plant and equipment that is acquired in exchange for a
combination of monetary and non-monetary asset is measured at
A. Fair value of the asset given plus cash payment

If an entity is able to determine reliably the fair value of the asset given in the fair value of
the asset received in an exchange transaction the cost of the asset acquired is measured at
A. Fair value of asset given

In an exchange having commercial substance

A. Gain or loss is fully recognized

Which exchange has commercial substance?

C. Exchange of assets with a difference in future cash flows

Which statement is true concerning acquisition by self-construction

D. All of the statements are true

Which of the following best describes the removal of an asset from the statement of financial
position?
A. Derecognition

The carrying amount of property plant and equipment that shall be derecognized
D. On disposal and when no future economic benefits are expected from the use of the asset

Gain and loss rising from the derecognition of property plant and equipment shall be the
determin ing as the difference between
D. Net disposal proceeds and carrying amount

Entities are encouraged to disclose all of the following in a relation to property plant and
equipment, except
D. The fair value of property plant and equipment that is not materially different from
carrying amount when the cost model is used

which of the following shall not be capitalized as cost of property plant ans equipment
A. Cost of excess materials from a purchasing error

The initial operating losses should be

B. Expensed and charged to the income statement
An entity imported machinery to be installed in the new factory premises before year end.
What is the property treatment of freight and interest on the loan to fund the cost of
machinery
A. Both expenses are capitalized

Which of the following statements in relation to the cost of an asset is true

D. All of the statements are true

The configuration of cash flows in an exchange includes which of the following

B. The risk, timing and amount of cash flows of the assets

A nonmonetary exchanged is recognized at the fair value of the assets exchanged unless
B. Fair value is not determinable

In an exchange, which will require the asset to be recognized at carrying amount of the asset
relinquished
B. The exchange transaction is intended to facilitate sales to customer

When determining the commercial substance of the exchange, which of the following is not
considered?
C. Cashh flow from tax effect on the exchange to avoid taxes

which of the following statements describes the proper accounting for loss in a nonmonetary
exchange
A. A loss is recognized immediately

The cost of an item of property plant and equipment comprises the purchase price and
D. all directly attributable cost to bring the asset to the location and condition for the
intended use

When property is acquired by issuing shares, which of the following is the best basis for
establishing the cost of the acquired asset
C. Fair value of the asset received or the fair value of the shares issued, whichever is more
reliable

When a plant asset is acquired by deferred payment, which condition is generally does not
indicate the need to consider the imputation of interest?
D. The face amount of the deferred obligation is equal to the market value of the plant aset
exchanged

When payment for property, plant and equipment is deferred beyond normal credit terms,
the difference between the cash price equivalent and the total payments is recognized as
C. Interest expense over the credit period
If the present value of a note issued in exchange for a plant asset is less than the face
amount, the difference is
B. Amortized as interest expense over the life of the note

An entity purchased a plant asset under a deferred payment contract. The agreement was to
pay 10,000 per year for five years. What is the initial measurement of the plant asset
C. Present the value of 10,000 annuity for five years at an imputed interest

An entity purchased a plant asset under a deferred payment contract. The agreement was to
pay 10,000 at the time of purchase and 10,000 at the end of each of the next five years. What
is the initial measurement of the plant asset?
D. 60,000 less imputed interest

A donated plant asset for which the fair value has been determined and for which directly
attributable costs were incurred shall be recorded at an amount equal to
B. Fair value and directly attributable costs incurred

Donated equipment for which the fair value has been determined shall beauty coated as a
debit to the appropriate equipment account in a credit to 
D. Income

Which of the following is the most appropriate policy as regards the allocation of joint
overhead cost to plant and equipment constructed by the entity for own use? 
D. Assign a proportionate share of overhead to the construction on the same basis as that
used for the assignment to normal production

This represents assistance by government in the form of transfer of resources to an entity in

return for past or future compliance with certain conditions relating to the operating
activities of the entity
A. Government grant

government grant shall be recognized when there is reasonable assurance that

C. The entity will comply with the conditions of the grant and the grant will be received

This is government grant whose primary condition is that an entity qualifying for the grant
should purchase, construct or otherwise acquire long-term asset
A. Grant related to asset

Government grant in recognition of specific costs is recognized as income

A. Over the same period as the relevant expense

Government grant related to depreciable asset is usually recognized as income

D. Over the useful life of the asset and in proportion to the depreciation of the asset
a government grant that become receivable as compensation for expenses or losses already
incurred or for the purpose of giving immediate financial support identity with no future
related costs should be recognized as income
B. Of the period in which it becomes

A government grant that becomes repayable shall be accounted for as

A. Change in accounting estimate

Repayment of grant related to income shall be

D. Applied first against the deferred income balance and an excess shall be recognized
immediately as an expense

Repayment of grant related to an assets shall be recorded by

D. All of these

It is an action by a government designed to provide an economic benefit specific to an entity

and for which the government cannot reasonably place a value
A. Government grant

Government assistance includes all of the following , except

D. improved irrigation water system for the benefit of an entire local community

Which of the following is included and government assistance ?

D. none of these can be included in government assistance

A forgivable loan from a government or the benefit of a government loan at NIL or below
market interest rate is accounted for as
A. Government grant

The amount of benefit in a zero-interest government loans is measured as the difference

between
A. Face amount and present value of loan

In the case of a non-monetary grant, which of the following accounting treatment is

prescribed ?
C. Record both the grant and asset at fair value of the non-monetary asset

In the case of grant related to an asset , which of the following accounting treatment is
prescribed ?
B. either set up the grant as deferred income or deduct it in arriving at the carrying amount of
the asset

Which disclosure is not record for government grant ?

C. the name of the government agency that gave the grant along with the date of sanction of
the grant by the government agency and the date when the cash was received in case of
monetary grant

In the case of grant related to income , which of the following accounting treatment is
prescribed ?
B. Present the grant in the income statement as other income or as a separate line item
comma or deduct it from the related expense

At the beginning of the current year , an entity receive the ground 21 to give financial
assistance to the entity for start-up costs already incurred , and grant to subsidize the cost of
purchasing computer software over a 5-year period.
D. income from grant one should be recognized immediately in the current year and income
from grant to should be recognized over 5 years

which of the following statements is true in relation to government grant

D.  Resources acquired through government grant must be accounted for using the income
approach

The account deferred grant income is classified as

B. An noncurrent liability

If the cost of the asset is recorded net of the government grant

C. Asset is understated

which of the following statements is incorrect when a government provides an interest-free

loan to an entity ?
C. the interest element is amortized over the term of the loan using the effective interest
method

Borrowing costs are defined as

D. Interest and other costs that an entity increase in connection with borrowing of funds

which of the following statements is true concerning capitalization of borrowing costs?

I. If the borrowing is directly
II. If the borrowing is not directly
C. Boss I and II

if the qualifying asset is financed by specific borrowing , the capitalizable borrowing cost is
equal to
C. actual borrowing costs incurred up to the completion of asset minus any investment
income from the temporary investment of the borrowing
if the qualifying assets financed by general borrowing , the capitalizable borrowing cost is
equal to
C. average expenditure on the asset x e capitalization rate or actual borrowing costs incurred,
whichever is lower

Which of the following is not a qualifying asset ?

C. Investment property

Which of the following should not be considered a qualifying asset?

B. An expensive jet that can be purchased from a vendor

Which of the following could be treated as qualifying asset?

A. Investment property

Which of the following cost may not be eligible for capitalization as borrowing cost?
C. Imputed cost of equity

Capitalization of borrowing costs

D. should be suspended only during extended period of delay in which active development is
delayed

Which of the following is a disclosure requirement in relation to borrowing cost ?

D. borrowing costs capitalized during the period and capitalization rate used to determine
borrowing costs to be capitalized

An asset is being constructed for an entity's own use . The asset has been financed with a
specific new borrowing. The interest cost incurred during the construction period as a result
of expenditures for the asset is
C. a part of the historical cost of acquiring the asset to be allocated over the estimated useful
life of the asset

when computing the amount of interest cost to be capitalized , the concept of avoidable
interest refers to
C. the portion of total interest cost which would not have been incurred if expenditures for
asset construction had not been made

which of the following statements about the capitalization of borrowing costs as part of a
cost of qualifying asset is true
A. if funds come from general borrowings, the amount to be capitalized is based on the
weighted average amount of expenditures

Which of the following is required for borrowing costs incurred that are directly attributable
to the construction of a qualifying asset?
B. Capitalized as part of the cost of the asset
An entity is commencing a new construction project, which is to be financed by borrowing.
C. June 30

Which of the following is the recommended approach in accounting for interest incurred in
financing the construction of property plant and equipment ?
A. Capitalize only the actual interest incurred during construction

Assets to qualify for interest capitalization include

D. All of these assets qualify for interest capitalization

Which of the following is not a condition that must be satisfied before interest capitalization
can begin on a qualifying asset
C. The interest rate is equal to or greater than the cost of capital

The period of time during which interest must be capitalized ends when
A. The asset is substantially complete and ready for the intended use

Interest revenue earned on specific borrowing for qualifying asset

A. Reduces the cost of the qualifying asset

when an entity acquired land with an old building and immediately demolish the old building
so that the land can be used for the construction of a plant , because in creed 2 demolished
old bending should be 
B. added to the cost of the plant

if an entity purchase a lot and an old building and immediately demolish the old been link
and use the property as a parking lot , the proper accounting treatment of the carrying
amount of the old building would depend on
D. the intention of management for the property when the building was acquired

an entity purchase land to be used as investment property. Timber was cut from the site so
development of the land could begin . The proceeds from the sale of the timber should be 
C. Deducted from the cause of the land

land was purchased to be used as the site for the construction of a new building . An old
building on the property was sold and removed by the buyer's elite construction on the new
building could begin immediately
B. Deducted from the cost of the new building

an entity's forest plant was condemned for use as a national park.  Compensation for the
condemnation exceeded the forest lands carrying amount. 
A. the amount is increased by the excess of the replacement forest lands cost over the
condemn the lands carrying amount
The single cost of acquiring land and a usable old building is
C. Allocated between land and building based on relative fair value

The single cost of acquiring land and an unusable old building is

A. Charge to the land only

 the cost of demolishing an old building to make room for the construction of a new building
should be
C. charged to the new building

when land and then we'll building a required , the cost of immediately demolishing the old
building to prepare the land for the intended use of should be
C.  charged to the land

the carrying amount of an existing gold building demolished to make room for the
construction of a new building should be 
A. accounted for as loss

The cost of building usually includes all, except

C. expenditure for movable equipment and fixture

The cost of land usually includes all, except

B. property tax after date of acquisition

The cost of land typically includes all, except

C. private driveway and parking lot

Fence and parking lot are reported as

B. Land improvements

An entity purchased land and a hotel with the plan to tear down the hotel and build a new
hotel . The allocated cost of the old mode hotel should be
B. Written off as lost in the year noted is torn down

The term betterment refers to

A. An expenditure made for new facilities which increased capacity

Which type of expenditure occurs when an entity installs a higher capacity boiler to heat the
plant?
A. rearrangement
A building suffered uninsured fire damage. The damage portion of the building was
refurbished with higher quality materials. The cost and related depreciation of the damaged
portion are identifiable. To account for these events, the entity should
A. capitalize the cost of refurbishing and record a loss in the current period equal to the
carrying amount of the damaged portion of the building

Which of the following costs relating to non-current assets should not be capitalized?
D. replacement of small spare parts on wedding

which of the following would ordinarily be treated as a revenue expenditure rather than a
capital expenditure ? 
A. Cost of servicing and overhaul to restore or maintain the originally assessed a standard of
performance

Which expenditure may properly be capitalized

B. insurance on plant during construction

an improvement made to a machine which increased the fair value and production capacity
without extending the useful life of the machine should be
C. capitalized in the machine account

an entity incurred cost to modify a building and to rearrange a production line . As a result ,
an overall reduction in production cost is expected . However , the modification did not
increase the market value of the building and the arrangement did not extend the life of the
production line. Should the building modification cost and the production line rearrangement
cost be capitalized ? 
C. Both the building modification cost and production line arrangement cost should be
capitalized

Which of the following subsequent expenditures should be expensive mediately ? 

C. Expenditure made to maintain an existing asset in operating condition

An expenditure made in connection with a machine being used by an entity should be

D. capitalized if it increases the quantity of units produced by the machine

Which of the following statement best describes the term depreciation

A. the systematic a location of an assets cost less residual value over the useful life

Carrying amount is the

D. amount at which an asset is recognized in the statement of financial position after
deducting any accumulated depreciation and accumulated impairment loss

Which of the following statements is incorrect with respect to depreciation ?

D. The estimation of the useful life of an item of property plant and equipment is a matter of
judgment based on the experience of the entity with similar assets

All of the following factors are considered in determining the useful life of an asset , expect
D. residual value

The production method of depreciation results in

D. variable change based on the expected use or output of the asset

Which is incorrect concerning the residual value of an item of property plant and equipment?
D. the residual value of an asset shall be reviewed at least at each financial year end and if
expectation differ from previous estimate , the change should accounted for as a change in
accounting policy

The useful life oven item of property plant and equipment shall be reviewed at least at each
financial year and and if expressions are significantly different from previous estimate , the
depreciation charge for the
D. current and future periods shall be adjusted

The depreciation method appliedthe property plant and equipment shall be reviewed at least
at each meningeal year and and if there has been a significant change in the expected pattern
of economic benefits from this assets , the change
C. shall be accounted for as a change in accounting estimate

this philife of property plant and equipment is 

I. The period of time over which
II. The number of production or similar
C. Both I and II

Technical or commercial observance arises from

C. Changes or improvements in production or change in the market demand for the product
output of the asset

Which of the following terms best describes the cost or an amount substituted for cost of an
asset less the residual value?
A. depreciable amount

Which of the following reasons provides the best theoretical support for accelerated
depreciation?
A. assets are more deficient in early years and initially generate more revenue

A depreciable asset has an estimated 15% residual value . At the end of the estimated useful
life, the accumulated depreciation would equal the original cost of the asset under which of
the following depreciation methods?
D. None of these

A machine with a 5-year estimated useful life and then estimated 10% residual value was
acquired at the beginning of the current year. At the end of the fourth year, cumulated
depreciation, using the sum of the years digits method , would be
A. Original cost less residual value by 1/15

Which of the following uses straight line depreciation

D. group and composite depreciation

The composite depreciation method

C. Does not recognize gainor loss on the retirement of a single asset and the group

An entity using to composite depreciation method for a fleet of trucks , cars , and campers
retired one of the trucks and received cash from a salvage auntie . They not carrying amount
of this composite assets would be decreased by 
A. cash proceeds received and original cost of the truck

Which of the following statement is true in relation to the position?

D. all of the statements are true

Precision is normally computed on the basis of the nearest

B. full month and to the nearest peso

The double declining method

D. All of these

The sum of the years digits method results in

A. residual value being ignored

Economics factors that shorten the service life of an asset include of 
D. Obsolescence, suppression and inadequacy

Depreciation is best described as a method of 

C. cost allocation

In which method is residual value not a factor in determining depreciation in early years of
the useful life of an asset
D. Declining balance

Which of the following the depreciation methods is not appropriate for situations involving a
large number of similar items , each having a small peso cost
B. Retirement method
What factor must be present under the production method
A. Total units to be produced can be estimated

Which of the following must be known when using the SYD

D. all must be known

An addition that is an integral part of an older asset normally would be depreciated over
 B. the useful life of the addition or the original acid , whichever is shorter

The major difference between the service life of an asset and physical life is that 
A. service life refers to the time an asset shall be used in entity and physical life refers to how
long the essential last

if there is a change from a double declining balance to straight line method

D. the accumulated depreciation is not adjusted but the remaining carrying amount is
allocated over the original useful life using the straight-line method

An entity acquired equipment and used the straight-line depreciation with peaceful life of 15
years and no residual value . After four years of using the asset, that it is estimated that the
remaining life of the equipment was six years with no residual value. How should this charge
be accounted for?
D. revising future depreciation annually to equal the depreciable amount divided by six

the most common method of computing depletion as

D. production method 

Depletion expense 
A. is usually part of cost of goods sold

information needed to compute a depletion charge per unit includes the

A. estimated total amount of resources available for removal

which of the following most accurately describes the generally accepted accounting principle
regarding the accounting for the cost of drilling dry holes in the oil and gas industry ? 
C. Both of the successful effort and full cost methods may be used

which of the following is not part of the double amount

C. tangible development costs associated with equipment used to extract the mineral
resource

Exploration and evaluation expenditures are incurred 

C. when a specific area is being developed and preparations for commercial extraction or
being made 
when is an entity in required to recognize exploration and evaluation expenditure as an asset 
B. when the technical feasibility and commercial viability of extracting the associated mineral
resources have been demonstrated 

which of the following expenditures would never qualified as an exploration and evaluation
asset 
C. expenditure related to the development of mineral resource 

which measurement model applies to exploration and evaluation assets subsequent to initial
recognition 
C. either the cost model or the revaluation model 

which type of the expenditure is included in the term exploration and evaluation of mineral
resources
D. None of this should be included in exploration and evaluation expenditures

What is the revalued amount of property plant and equipment

D.  fair value and depreciated replacement cost

when there is no evidence of market value because of the specialized nature of the plant and
equipment and because these items are really sold , the estimate of fair value is 
B. depreciated replacement cost

what is the treatment of the accumulated depreciation on the date of revaluation  

D. restated proportionately with the change and across carrying amount of the asset or
eliminated against the gross carrying amount of the asset

which of the following is not considered a separate class of property plant and equipment
C. ship and aircraft

 when an assets carrying amount is increased as a result of a revaluation , the increase will be
credited to
A.  revaluation surplus is a component of other comprehensive income

brand assets carrying amount is decreased as a result of a revaluation , the decreased shall be
A.  recognized in profit or loss

when the revaluation surplus is realized because of the use of the asset or disposal of an
asset , it may be transferred directly to
A. retained earnings

if a depreciable property is a valued at the middle of the current year , how is the
depreciation expense for the year determine the entity has a calendar year end
C. depreciation for the interior is based on revalued amount
An entity owned a fleet of cars and ships. The entity decided three value property plant and
equipment . Which of the following statements is true
B. Revalue an entire class of property plant and equipment 

which statement is true about the revaluation model for property plant and equipment 
D. all of these statements are true about the revaluation model

When an entity chooses that evaluation model as an accounting policy for measuring
property , plant and equipment , which of the following statement is correct?
A. when an asset is revalued , the entire  class of property , plant and equipment to which the
asset belongs must be revalued

under the revaluation model for accounting for property plant and equipment 
D. there is no rule regarding the frequency of revaluation 

when the revaluation model is used for reporting property plant and equipment , the game
should be included in 
A. retained earnings

An intangible assets is defined as

C. An identifiable nonmonetary asset without physical substance

An intangible assets is identifiable when

C. It is either separable or it arises from contractual and other legal right

Which of the following statements is true in relation to control by the entity of the intangible
asset?
D. all of these statements are true

An intangible asset shall be recognized if

D. it is probable that future economic benefits attributable to the asset will flow to the enity
and the cost of the intangible asset can be measured reliably

Which of the following statement is true concerning separate acquisition of an intangible

asset?
D. all of these statements are true

Which of the following statement is incorrect concerning acquisition of an intangible asset as

a part of a business combination?
D. The fair value of an identifiable intangible asset acquired in a business combination cannot
be measured with sufficient reliability separately from goodwill

which of the following statements is true in relation to internally generated intangible assets
D.  all of the statements are true

the cost of an internally generated intangible asset includes all of the following except
D.  expenditure on training staff to operate the asset 

all of the following expenditure expense when incurred except 

D. payment in advance of delivery of goods or the rendering of services

which of the following statements is through concerning amortization and impairment of

indigable assets 
D. all of the statements are true

it is the systematic allocation of the amortizable amount of an intangible asset over the
useful life
 A. amortization

The more decision method used should reflect the pattern in which the assets economic
benefits are consumed by the entity. If such important can be determined to lie become what
is the emperor decision method used?
A.  straight line

The fuck force that need to be considered and intermitting the useful life and could over the
following except 
D. Residual value

and inventible assets regarded as having an independent useful life when

A.  there is no possible limit to the period over which it has expected to generate net cash
and close to the entity

there she go value of anything about asset with affinity useful life shall be assumed zero,
except 
D. there are no exceptions

I thought you was at the court by way of government grant maybe initiative recorded at 
C. either fair value or nominal amount of zero plus directly attributable expenditure

The cost of separately acquired integral asset comprises the purchase price, including import
duties and nonderfundable purchase taxes, and 
D. Directly attributable cost of preparing the asset for the intended use

directed to beautiful cost of preparing the asset for the intended use in good oil called exact
D.  initial operating loss

After initial recognition, unintangible asset show be measured using the

C.  either model or evaluation model

which of the following represents the maximum amortization mandated for an intangible
asset with useful life
D.  no arbitrary cup on the useful life has been established

Which item does not qualify as an intensible asset 

D. notebook computer

which of the following would qualify as an integral asset

D.  legal cost paid to intelligible property lawyer to register a patent

Once recognized, an intangible asset can be carried at

B.  cost less accumulated amortization and improvement losses

which disclosure is not required with respect to an intensible asset 

D. fair value of similar intensible asset used by a competitor

I got the direction and there many days for life open in terms of asset is not the
C.  initial cost

Amortization of an intangible asset with a finite useful life shall commence when
C.  it is available for use

a brand name that was acquired separately shall initially be recognized at 
D. cost

the recognition criteria for an intelligible asset include which of the following condition
D.  it is probable that future economic benefit will arise from using the cost can be measured
reliably

What is the appropriate method of amortizing intangible asset

A. the straight-line method , unless the pattern in which the economic benefits are consumed
can be determined reliably

1. The most common type of liability is

d. One to be paid in cash and for which the amount

2. Which is not a characteristic of a liability?

b It must be payable in cash.
3. Classifying liabilities as either current or noncurrent helps creditors assess
b The relative risk of an entity's liabilities

4. Short-term obligations are reported as noncurrent if

C The entity has the discretion to refinance as long-term.

5. Which situation would not require that noncurrent liabilities be reported as current?
d. All of these require the current classification.

6. Which of the following represents a liability?

B the obligation to provide goods that customers have ordered and paid for during the
current year

7. Which does not meet the definition of a liability?

a. The signing of a an employment contract at fixed salary

8. Which of the following is a characteristic of a current liability but not a noncurrent liability?
C. Settlement is expected within the normal operating cycle or within 12 months, whichever
is longer.

9. Which of the following is not considered a characteristic of a liability?

d. Liquidation is reasonably expected to require use of current assets

10 Which of the following is not an acceptable presentation of current liabilities?

c. Offsetting current liabilities against assets that are to be applied to their liquidation
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1. Among the short-term obligations at year-end are 90-day notes, renewable for another 90-
day period. What is the classification of the notes payable?
a Current liabilities
2. At year-end, an entity has 120-day note payables outstanding. The entity has followed the
policy of replacing the note rather than repaying it over the last three years. The entity's
treasurer says that this policy is expected to continue indefinitely, and the arrangement is
acceptable to the bank to which the note was issued. What is the proper classification of the
note in the year-end statement of financial position?
c. Current liability, unless specific refinancing criteria are met

3. An entity had a note payable due next year. After the end of reporting period and before
the issuance of the current year financial statements, the entity issued long-term bonds
payable. Proceeds from the bonds were used to repay the note when due. How should the
entity classify the note payable at current year-end?
a. Current liability with separate disclosure of the note refinancing

4. An entity has a loan due for repayment in six months’ time, but the entity has the option to
refinance for repayment two years later. The entity plans to refinance this loan. In which
section of the statement of financial position should this loan be presented?
c. Noncurrent liabilities
5. At year-end, an entity classified a note payable as current liability. Under what condition
could the entity reclassify the note payable from current to noncurrent?
d. If the entity has executed an agreement to refinance the note before the end of reporting
period.
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1. The most relevant measurement of liabilities at initial recognition should always reflect
c.) The credit standing of the entity

2. Which statement best describes the term liability?

d. A present obligation arising from past event

3. What is the relationship between present value and the concept of a liability?
a. Present value is used to measure certain liabilities.

4. If a long-term debt becomes callable due to the violation of a loan covenant

B The debt should be reclassified as current.

5. What is the classification of debt callable by the creditor

b. Current liability
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1. Advance payments from customers represent
a. Liabilities until the product is provided.

2. Revenue associated with gift card sales should be recognized

c. When the probability of gift card redemption is viewed as remote.

3. All else equal, a large increase in unearned revenue in the current period would be
expected to produce what effect on revenue in a future period?
a. Large increase because unearned revenue becomes revenue when earned.

4. When a product is delivered for which a customer advance has been previously received,
the appropriate journal entry includes
d. A debit to liability and credit to revenue

5. When cash is received from customers in the form of a refundable deposit, the cash
account is increased with a corresponding increase in
a. Current liability
------
1. A department store received cash and issued a gift certificate that is redeemable in
merchandise. When the gift certificate was issued
b. Deferred revenue account should be increased

2. A retail store received cash and issued gift certificate that are redeemable in merchandise.
How would the deferred revenue account be affected by the redemption and nonredemption
of certificates, respectively?
b. Decrease and Decrease

3. An entity received an advance payment for special order goods that are to be
manufactured and delivered within six months. How should the advance payment be
reported?
c. Current liability

4. At year-end, an entity sold refundable merchandise coupon. The entity received a certain
amount for each coupon redeemable next year for merchandise with a certain retail price. At
year-end, how should the entity report these coupon transactions?
b. Unearned revenue at the cash received

5. How would the proceeds received from the advance sale of nonrefundable tickets for a
theatrical performance be reported in the statement of financial position before the
performance?
d. Unearned revenue for the entire proceeds

6. Magazine subscriptions collected in advance should be treated as

b. Deferred revenue in the liability section

7. Under a royalty agreement with another entity, an entity will receive royalties from the
assignment of a patent for four years. The royalties received in advance should be reported
as revenue
b. In the period earned

8. An entity is a retailer of home appliances and offers a service contract on each appliance
sold. Collections received for service contracts should be recorded as an increase in a
a. Deferred revenue account

9. An entity sells appliances that include a three-year warranty. Service calls under the
warranty are performed by an independent mechanic under a contract with the entity. Based
on experience, warranty costs are expected to be incurred for each machine sold. When
should the entity recognize these warranty costs?
d. When the machines are sold

10. At the end of the current year, an entity received an advance payment of 60% of the sales
price for special order goods to be manufactured and delivered within five months. At the
same time, the entity subcontracted for production of the special order goods at a price equal
to 40% of the main contract price. What liabilities should be reported in the year-end
statement of financial position?
C Deferred revenue equal to 60% of the main contract price and no payable to subcontractor
1. The cost of customer premium offer should be charged to expense (A)
a. When the related product is sold.

2. The accounting concept that requires recognition of a liability for customer premium
offer is (D)
d. Matching principle

3. Accounting for cost of incentive program for frequent customer purchases involves (A)
a. Recording an expense and a liability each period.

4. Accounting for cost of incentive program for customer purchases (D)

d. All of these are correct.

5. Providing a monetary rebate program (D)

a.All of these are correct

The accrual approach in accounting for warranty

d. Represents accepted practice and should be used whenever the warranty is an integral and
inseparable part of the sale.

2. Which of the following best describes the accrual approach of accounting for warranty
cost?
C. Expensed based on estimate in year of sale

3. Which of the following best describes the expense as incurred approach of accounting for
warranty cost?
d. Expensed when incurred

4. What is the classification of the estimated warranty liability in a three-year warranty?

C. Partly current and partly noncurrent

5. Which of the following is a characteristic of the accrual of warranty but not the sale of
warranty?
a. Warranty liability

1. Which is the correct definition of a provision?

ANSWER: A liability of uncertain timing or uncertain amount

2. A provision shall be recognized when

ANSWER: All of these are required for the recognition of a provision

3. A legal obligation is an obligation that is derived from all of the following, except:
ANSWER: An established pattern of practice
4. A constructive obligation is an obligation
ANSWER: That is derived from an entity’s action that the entity will accept certain
responsibilities because of past practice or published policy.
-The entity has created a valid exception in other parties that it will discharge those
responsibilities.

5. It is an event that creates a legal or constructive obligation because the entity has no other
realistic alternative but to settle the obligation.
ANSWER: Obligation event

6. An outflow of resources embodying economic benefits is regarded as “probable” when

ANSWER: The probability that the event will occur is greater than the probability that the
event will not occur

7. Where there is a continuous range of possible outcomes, and each point in that range is as
likely as any other, the range to be used is the
ANSWER: Midpoint

8. When the provision involves a large population of items, the estimate of the amount
ANSWER: Reflects the weighting of all possible outcomes by their associated probabilities.

9. When the provision arises from a single obligation, the estimate of the amount
ANSWER: Is the individual most likely outcome adjusted for the effect of other possible
outcomes.

10. Which statement is incorrect when the expenditure required to settle a provision is
expected to be reimbursed by another party?
ANSWER: The reimbursement shall be “netted” against the estimated liability for the
provision.
-------
1. A provision shall be recognized for
ANSWER: Obligations for plant decommissioning costs

2. Provisions shall be recognized for all of the following, except

ANSWER: Future refurbishment costs due to introduction of a new computer system

3. An entity is closing one of its operating divisions, and the conditions for making
restructuring provision have been met…..Which of the following costs should be included in
the restructuring provision?
ANSWER: Contractually required costs of retiring staff being made redundant from the
division being closed.
4. An entity has been served a legal notice at year-end by the Department of Environment
and Natural Resources to fit smoke detectors in its factory on or before middle of the next
year….How should the entity treat this in the financial statements at year-end?
ANSWER: No provision is recognized at year-end because there is no present obligation for
the future expenditure…

5. An entity operates chemical plants. The published policies include a commitment to

making good any damage caused to the environment by its operations. The entity has always
honored this commitment. Which of the following scenarios relating to the entity would give
rise to a provision?
ANSWER: A chemical spill from one of the entity’s plants has caused harm to the surrounding
area and wildlife.
---------
1. An entity did not record an accrual for a present obligation but disclose the nature of the
obligation and the range of the loss. How likely is the loss?
ANSWER: Reasonably possible

2. The likelihood that the future event will or will not occur can be expressed by a range of
outcome. Which range means that the future event occurring is very slight?
ANSWER: Remote

3. An expropriation of asset which is imminent and for which the amount of loss can be
reasonably estimated should be
ANSWER: Accrued and disclosed
4. A present obligation that is probable and for which the amount can be reliably estimated
should
ANSWER: Be accrued by debiting an expense account and crediting a liability account

5. General and unspecified contingencies should

ANSWER: Not be accrued and need not be disclosed.

1. Contingent liabilities will or will not become actual liabilities depending on

ANSWER: The outcome of a future event

2. A contingent liability shall be recognized when

ANSWER: The amount of the loss can be reliably measured and it is probable prior to issuance
of financial statements that a liability has been incurred.

3. How should a contingent liability be reported in the financial statements when it is

reasonably possible?
ANSWER: As a disclosure only

4. Disclosure usually is not required for

ANSWER: Contingent loss that is remote and measurable
5. Reporting in the financial statement is required for
ANSWER: Loss contingency that is probable and measurable

6. A contingent liability
ANSWER: Is the result of a loss contingency

7. A contingent liability is
ANSWER: An event which is not recognized because it is not probable that an outflow will be
required or the amount cannot be reliably estimated.

8. Which statement is incorrect concerning a contingent liability?

ANSWER: A contingent liability is both probable and measurable

9. A contingent liability
ANSWER: Has a most probable value of zero but may require a payment if a given future
event occurs

10. Which of the following is not considered when evaluating whether or not to record a
liability for pending litigation?
ANSWER: The type of litigation involved
-------
1. Most corporate bonds are
ANSWER: Debenture bonds
2. The method used to pay interest depends on whether the bonds are:
ANSWER: Registered or coupon

3. Zero-coupon bonds:
ANSWER: Offer a return in the form of a deep discount off the face amount

4. To evaluate the risk and quality of an individual bond issue, investors rely heavily on
ANSWER: Bond ratings provided by investment houses

5. Bonds payable should be reported as noncurrent at:

ANSWER: Face amount less any unamortized discount plus any unamortized premium

6. The discount on bonds payable is reported as:

ANSWER: A contra liability

7. In the amortization schedule for discount on bonds payable:

ANSWER: The total effective interest over the term to maturity is equal to the amount of the
discount plus the total cash interest paid,

8. An amortization schedule for bonds issued at a premium

ANSWER: Is a schedule that reflects the changes in the bonds payable over the term to
maturity.

9. When bonds are retired prior to maturity date:

ANSWER: The issuer probably will report an ordinary gain or loss.

10. An entity has bonds outstanding during a year in which the market rate of interest has
risen. The entity elected the fair value option. What will the entity report for the year?
ANSWER: Interest expense and a gain
------

1. Bonds that mature on a single date are called:

ANSWER: Term bonds

2. Bonds issued with schedule maturities at various dates are called:

ANSWER: Serial bonds

3. Debentures are:
ANSWER: Unsecured bonds

4. How would the amortization of premium on bonds payable affect the carrying amount of
bond and net income respectively?
ANSWER: Decrease and Increase

5. How would the amortization of discount on bonds payable affect the carrying amount of
bond and net income respectively?
ANSWER: Increase and Decrease

6. Unamortized bond discount should be reported as:

ANSWER: Direct deduction from the face amount of the bond

7. When the interest payments dates of a bond are May 1 and November 1, and a bond issue
is sold on June 1, the amount of cash received by the issuer will be:
ANSWER: Increased by accrued interest from May 1 and June 1

8. The issuer of a bond sold at face amount with interest payable February 1 and August 1
should report:
ANSWER: Liability for accrued interest

9. A bond issued on June 1 has interest payment dates of April 1 and October 1. Bond interest
expense for the current year ended December 31 is for a period of:
ANSWER: Seven months

10. A bond was issued at a discount with a call provision. When the bond issuer exercised the
call provision on an interest date, the amount of bond liability derecognized should have
equaled the:
ANSWER: Face amount less unamortized discount

1. What is the interest rate written on the face of the bond?

ANSWER: Coupon rate, nominal rate or stated rate

2. What is the rate of interest actually incurred?

ANSWER: Market, yield or effective rate

3. When the effective interest method is used, the periodic amortization would
ANSWER: Increase if the bonds were issued at either a discount or a premium

4. The discount on bond payable is charged to interest expense

ANSWER: Using the effective interest method

5. Bond issue cost

ANSWER: All of these relate to bond issue cost

6. Under the effective interest method of amortization, the interest expense is equal to
ANSWER: The market rate of interest multiplied by the beginning carrying amount of the
bonds

7. When interest expense for the current year is more than interest paid, the bonds were
issued at:
ANSWER: A discount

8. When interest expense for the current year is less than interest paid, the bonds were
issued at:
ANSWER: A premium

9. Bonds usually sell at:

ANSWER: Present value

10. Which statement is true about bonds payable?

ANSWER: The specific provisions of a bond issue are described in a document called bond
indenture
-----
1. When bonds are sold at a premium and the effective interest method is used, at each
subsequent interest payment date, the cash paid is
ANSWER: Greater than the effective interest

2. When bonds are sold at a discount and the effective interest method is used, at each
subsequent interest payment date, the cash paid is
ANSWER: Less than the effective interest

3. When bonds are sold at a discount and the effective interest method is used, at each
interest payment date, the interest expense
ANSWER: Increases

4. When bonds are sold at a premium and the effective interest method is used, at each
interest payment date, the interest expense
ANSWER: Decreases

5. Interest expense is
ANSWER: The effective rate times the carrying amount of the bond during the interest period
-------
1. What is the effective interest rate of a bond measure at amortized cost?
ANSWER: The interest rate that exactly discounts estimated future cash payments through
the expected life of the bond or when appropriate, a shorter period to the net carrying
amount of the bond

2. For a bond issue which sells less than face value, the market rate of interest is
ANSWER: Higher than rate stated on the bond

3. What is the market rate of interest of a bond issue which sells for more than face value?
ANSWER: Less than rate stated on the bond

4. If bonds are issued at a premium, this indicates that

ANSWER: The nominal rate exceeds the yield rate

5. Which of the following is true for a bond maturing on a single date when the effective
interest method of amortizing bond discount is used?
ANSWER: Interest expense increases each six-month period

6. In theory, the proceeds from the sale of a bond will be equal to

ANSWER: The present value of the principal due at the end of the life of the bond plus the
present value of the interest payments made during the life of the bond

7. The market price of a bond issued at a discount is the present value of the principal
amount at the market rate of interest
ANSWER: Plus the present value of all future interest payments at the market rate of interest

8. Under international accounting standard, the valuation method used for bond payable is
ANSWER: Discounted cash flow valuation at yield rate at issuance

9. How should an entity calculate the net proceeds to be received from bond issuance?
ANSWER: Discount the bonds at the market rate of interest and deduct bond issuance cost.
10. An entity issued a bond with a stated rate of interest that is less than the effective
interest rate. The bond was issued on one of the interest payment dates. What should the
entity report on the first interest payment date?
ANSWER: An interest expense that is greater than the cash payment made to bondholders

1. What is the principal accounting for a compound financial instrument?

b. The issuer shall classify the liability and equity components of a compound instrument
separately as liability or equity instrument.

2. How are the proceeds from issuing a compound instrument allocated between the liability
and equity?
a. The liability component is measured at fair value and the remainder of the proceeds is
allocated to the equity component.

3. The proceeds from an issue of bonds with share warrants should not be allocated between
the liability and equity components when
d. The proceeds should be allocated between liability and equity under all of these
circumstances.

4. When the cash proceeds from bonds issued with share warrants exceed the fair value of
the bonds without the Warrants, the excess should be credited to
d. Share premium - share warrants
5. When bonds are issued with share warrants, the equity component is equal to
d. The excess of the proceeds over the fair value of the bonds without the share warrants.

A bond convertible by the holder into a fixed number of ordinary shares of the issuer is into a
fixed number of
a. A compound financial instrument

9. Convertible bonds
a. Have priority over other indebtedness.

What is the main reason for issuing convertible bond?

d. Convertible bond always sells at a premium.

The major difference between convertible bonds and bonds issued with share warrants is
that upon exercise of the warrants
b. The holder has to pay a certain amount to obtain the shares.

5. Convertible bonds
a. Are separated into the liability component and the expense component
b. Allow an entity to issue debt financing at lower rate.
6. What is the accounting for issued convertible bond?
c The instrument should be recorded solely as equity but not both. as equity.

7. Issued convertible bonds are

a. Separated into liability and equity components with the liability component recorded at
fair value and the residual assigned to the equity component

8. Bondholders exchanged their convertible bonds for ordinary shares. The carrying amount
of these bonds was lower than market value but greater than the par value of the ordinary
shares issued. If the book value method is used, which of the following correctly states an
effect of the conversion?
a. Shareholders' equity increased

9. The conversion of bonds payable into ordinary shares is commonly recorded by

d. Book value or carrying amount method

10. When convertible bond is not converted but paid at maturity

d. The carrying amount of the bond equal to face amount is derecognized.

1. When an entity issued a note solely in exchange for cash, the present value of the note at
issuance is equal to
C. Proceeds received

2. If the present value of a note issued in exchange for a property is less than face amount,
the difference should be
b. Amortized as interest expense over the life of the note

3. An entity borrowed cash from a bank and issued to the bank a short-term noninterest
bearing note payable. The bank discounted the note at 10% and remitted the proceeds to the
entity. The effective interest rate paid by the entity in this transaction would be
b. More than the stated discount rate of l0%

4. At issuance date, the present value of a promissory note is equal to the face amount if the
note
a. Bears a stated rate of interest which is realistic.

5. Which statement concerning discount on note payable is incorrect?

d. Amortizing the discount on note payable gradually decreases the carrying amount of the
liability over the life of the note,

6. When a note payable with no ready market is exchanged for property whose fair value is
currently indeterminable
a. The present value of the note payable must be approximated using an imputed interest
rate.
7. When a note payable is issued for property, the present value of the note is measured by
d. All of these are considered in measuring the present value of the note payable

8. When a note payable is exchanged for property, the stated interest rate is presumed to be
fair when
d. The stated interest rate is equal to the market rate.

9. The discount resulting from the determination of the present value of a note payable
should be reported as
b. Direct deduction from the face amount of the note

10. Which statement is correct when an entity issued a note payable payable with no stated
interest rate in exchange for a depreciable asset?
b. if fair value is unavailable, the note payable should be recorded at present value
discounted at the market rate of interest.

1. In a debt restructuring that is considered an asset swap, the gain on extinguishment is

equal to (D)
d. Excess of the carrying amount of the debt over the carrying amount of the asset

2. For a debt restructuring involving substantial modification of terms, it is appropriate for a

debtor to recognize a gain when the carrying amount of the debt (C)
c. Exceeds the present value of the future cash payments specified by the new terms.

3. For a debt restructuring involving a substantial modification of terms, which of the

following specified by the new terms would be compared to the carrying amount of the debt
to determine if the debtor should report a gain on extinguishment? (B)
b. The present value of the new debt at the original interest rate

4. Under a debt restructuring involving substantial modification of terms, the future cash
flows under the new terms shall be discounted using (A)
a. Original effective interest rate
------
1. An entity shall initially measure equity instruments issued to extinguish a financial liability
at (A)
a. Fair value of the equity instruments issued

2. If the fair value of the equity instruments issued cannot be reliably measured, the equity
instruments issued to extinguish a financial liability shall be measured at (A)
a. Fair value of the liability extinguished
3. If both the fair value of the equity instruments issued and the fair value of the financial
liability extinguished cannot be measured reliably, the equity instruments issued shall be
measured at
a. Carrying amount of the liability extinguished

4. The difference between the carrying amount of the financial liability extinguished and the
fair value of equity instruments issued shall be recognized in
a. Profit or loss

5.The gain or loss from extinguishment of a financial ability by issuing equity instruments is
presented as
b. Separate line item in the income statement

1. When shares with par value are sold, the proceeds shall be credited to the
b.Share premium

2. When shares without par value are sold, the excess proceeds over stated value shall be
credited to
c. share capital to the extent of the stated value and any excess is credited to share preimium

3. If shares are issued for a noncash consideration, the shares issued shall be measured by
Fair value of the noncash consideration received

4. If shares are issued to extinguish a financial liability, what is the initial measurement of the
shares issued?
b. Fair value of the shares issued

5. When shares are issued in payment for the services, what is the least appropriate basis for
recording the transaction?
b. Par value of the shares issued

6. The cost of treasury shares acquired for noncash consideration is usually measured by
b. Carrying amount of the noncash asset surrendered

7. If treasury shares are reissued for noncash consideration, the proceeds shall be measured
by
b.Fair value of the noncash consideration

8. Which statement is incorrect concerning treasury shares?

c. Treasury shares may be recognized as financial asset.

9. “Loss” from sale of treasury shares shall be charged to

c. Share premium from treasury shares and then retained earnings
10. Gain and loss on retirement of treasury shares shall not be included in profit or loss. F the
retirement results in a gain, such gain shall be credited to
a. Share premium

11. Loss on retirement of treasury shares shall be debited to

d. Share premium from original issuance, share premium from treasury shares and then
retained earnings

12. Which statement best describes a possible result of treasury share transactions?
c. May decrease but not increase retained earnings

13. Which statement is true concerning share capital transactions?

d. All of these statements are true concerning share capital transactions

14. Transaction costs directly attributable to the issuance of new shares should be
d. Deducted from share premium arising from the share issuance

15. Costs of public offering of shares or costs that relate to “stock market listing of shares”
should be
a. Expensed immediately

16. Transaction costs directly attributable to the issuance of new shares include all of the
following, except
d. Road show presentation

17. What is the treatment of “joint costs” that relate to the concurrent listing and issuance
of new shares, and listing of old existing shares?
d. The joint costs should be allocated between the newly issued and listed shares and the
newly listed old existing shares prorate based on the number of shares outstanding
18. When collectability is reasonably assured, the excess of the subscription price over the
stated value of the no-par subscribed share capital shall be recorded as
b. Share premium when the subscription is recorded

19. When treasury shares are purchased for more than par value, what account or accounts
shall be debited?
c. Treasury shares for the purchase price

20. The purchase of treasury shares

c. Decreases shares outstanding

21. At the date of the financial statements, shares issued would excess shares outstanding as
a result of
c. Purchase of treasury shares
22. The issuance of preference shares
a. Increases preference shares outstanding

23. When an entity calls in all of the preference shares for more than the original issue price,
the excess paid above the original issue price should be
d. Charged against retained earnings

24. When preference shares are purchased and retired by the issuing entity for less than
original price, proper accounting for the retirement
b. Increases the contributed capital of the ordinary shareholders

25. Convertible preference shares

b. Include an option for the holder to convert preference shares into a fixed number ordinary
shares

26. How would a share split affect asset and shareholders’ equity, respectively?
b. No effect and no effect

27. How would a share split affect share premium and retained earnings, respectively?
b. No effect and no effect

28. In accounting for shareholder’s equity, the accountant is primarily concerned with which
of the following?
c. Recording the source of each of the various elements of shareholders’ equity

29. Contributed capital does not include

d. Capital accumulated by retention of earnings

30. Total shareholders’ equity represents

c. A claim against a portion of the total assets of an entity

31. The par value of an ordinary share represents

c. The legal nominal value assigned to the share

32. The term residual owner means that shareholders

c. Bear the ultimate risks and receive the benefits of ownership

33. The residual interest in a corporation belongs to

c. Ordinary shareholders

34. Treasury shares are

d. Issued but not outstanding

35. Which of the following is not a method that may be used to account for treasury shares?
c. Retained earnings method

36.
Only a memorandum entry is made when
c. Entities issue rights to existing shareholders

37. When an entity issued rights to existing shareholders to purchase unissued ordinary
shares at more than par values, share premium would be recorded when the rights
b. Are exercised

38. An ordinary shareholder does not possess which of the following?

c. The right to direct ownership of the corporate assets

39. Which of the following is not one of the basic rights of a shareholder?
d. The right to inspect the accounting records of the corporation

40. The preemptive right of an ordinary shareholder is the right to

b. Share proportionately in any new shares of the same class

41. Discount on share capital

d. None of the above may be done

42. When the total shareholders’ equity is smaller than the amount of contributed capital,
the deficiency is called
d. A deficit

43. Nonstock dividends shall be recognized as liability on the

a. Date of declaration

44. When shareholders may elect to receive cash in lieu of share dividend, the amount to be
charged to retained earnings is equal to
a. Optional cash dividend

45. Treasury shares may be reissued as dividends, in which case what amount should be
charged to retained earnings?
a. Cost of the treasury shares

46. If the share dividend is less than 20%, what amount of the retained earnings should be
capitalized?
b. Fair value of the shares on the date of declaration

47. An entity issued what is called a “20% share dividend”. At what amount should retained
earnings be reduced for the transaction?
b. Par value
48. The declaration and the issuance of a 25% share dividend
b. Decreases retained earnings but does not change total equity

49. In closely held entities, if share dividends are declared, retained earnings shall be
capitalized at
a. Par or stated value

50. Which statement is incorrect concerning retained earnings?

c. A deficit in retained earnings shall be presented as an asset

51. Appropriated retained earnings should be reported as

b. Component of equity as part as total retained earnings

52. An entity shall measure a liability to distribute noncash asset as dividend to the owners at
b. Fair value of the asset distributed

53. An entity shall review and adjust the carrying amount of the dividend payable at the end
of each reporting period and at the date of settlement with any changes in the carrying
amount of the dividend payable recognized
a. In equity as adjustment to the amount of distribution

54. When an entity settles the property dividend payable, it shall recognize the difference
between the carrying amount of the dividend payable in
a. Profit or loss

55. An entity shall measure a noncurrent asset classified as held for distribution to owners at
c. Lower of carrying amount and fair value less cost to distribute

56. In entity declared cash dividend on a certain date payable on another date, retained
earnings would
c. Not be affected on the date of payment

57. The actual total amount of a cash dividend to be paid is determined on the date of
a. Record

58. A dividend which is a return to shareholders of a portion of their original investment is

a. Liquidating dividend

59. When the entity declared and paid a liquidating dividend, the distribution resulted in a
decrease in
d. Paid in capital and no effect on retained earnings
60. An entity declared a dividend, a portion of which was liquidating. How would this
declaration affect ontributed capital and retained earnings, respectively?
b. Decrease and decrease

61. The issuer should charge retained earnings for the fair value of the shares issued in a
b. 1 for 8 share dividend

62. If the issuing entity has only one class of share capital, a transfer from retained earnings
to share capital equal to the fair value of the shares issued is ordinarily a characteristic of
d. A share dividend but not a share spilt

63. Total shareholders’ equity remains the same when there is

c. Declaration of a share dividend

64. How would the declaration and subsequent issuance of a small share dividend affect
share capital and share premium respectively when the fair value of the shares exceeds the
par value of the shares?
d. Increase and increase

65. Unlike a share split, a share dividend requires a formal journal entry in the accounting
records because
d. Share dividends represent a transfer from retained earnings to share capital

66. Which of the following would not affect retained earnings?

b. Share split

67. How would retained earnings be affected by the declaration of share dividend and the
share split, respectively?
d. Decrease and no effect

68. When a share dividend is declared and issued

a. Total shareholders’ equity does not change

69. Undistributed share dividends should be reported as

b. An addition to share capital outstanding

70. An entry is not made on the

b. Date of record

71. Cash dividends are paid on the basis of the number of shares
c. Outstanding

72. If an entity wishes to “capitalize” retained earnings, it may issue

b. Share dividend
73. Liquidating dividends
c. Reduce amounts paid in by shareholders

74. A retained earnings appropriation is used to

d. Restrict earnings available for dividends

75. An appropriation of retained earnings for future plant expansion will result in
d. The disclosure that management does not intend to distribute in the form of dividends
assets equal to the amount of the appropriation

76. A restriction of retained earnings is most likely to be required by

b. Purchase of treasury shares

77. Retained earnings appropriated account is created for the purpose of

c. Protecting the working capital position

78. Which statement is incorrect concerning appropriations of retained earnings?

b. Appropriations of retained earnings reflect funds set aside for a designated purpose, such
as plant expansion

79. For which of the following purposes should an appropriation for possible loss
contingencies be established?
d. To inform shareholders that a portion of retained earnings should be set aside from
amounts available for dividends because of such contingencies

80. Which statement is true concerning appropriations of retained earnings?

d. All of these statements are true concerning appropriations of retained earnings.

81. Which of the following is most likely to be found in corporate laws regarding payment of
dividends?
b. Retained earnings are available for dividends unless restricted by contractor by statute

82. Which of the following is not a legal restriction related to profit distribution?
b. The amount distributed can never exceed the net incomes reported for the last year

In March 2014, an explosion occurred at Jogel Co.'s plant, causing damage to area properties.
By May 2014, no claims had yet been asserted against Jogel. However, Jogel's management
and legal counsel concluded that it was reasonably possible that Jogel would be held
responsible for negligence, and that P4,000,000 would be a reasonable estimate of the
damages. Jogel's P5,000,000 comprehensive public liability policy contains a P400,000
deductible clause. In Jogel's December 31, 2013 financial statements, for which the auditor's
fieldwork was completed in April 2014, how should this casualty be reported?
c. As a note disclosing a possible liability of P400,000
On January 1, 2013, Nicholas Corp. signed a three-year noncancelable purchase contract,
which allows Nicholas to purchase up to 500,000 units of computer part annually from Dark
Supply Co. at P10 per unit and guarantees minimum annual purchase of 100,000 units. During
2013, the part unexpectedly became obsolete. Nicholas had 250,000 units of this inventory at
December 31, 2013, and believes these parts can be sold as scrap for P2 per unit. What
amount of probable loss from the purchase commitment should Nicholas report in its 2013
profit or loss?
a. 1,600,000

Ortiz Corporation, a manufacturer of household paints, is preparing annual financial

statements at December 31, 2013. Because of a recently proven health hazard in one of its
paints, the government has clearly indicated its intention of having Ortiz recall all cans of this
paint sold in the last six months. The management of Ortiz estimates that this recall would
cost P800,000. What accounting recognition, if any, should be accorded this situation?
a. Operating expense of P800,000 and liability of P800,000

Dean Company becomes aware of a lawsuit after the date of the financial statements, but
before they are issued. A loss and related liability should be reported in the financial
statements if the amount can be reasonably estimated, an unfavorable outcome is highly
probable, and
b. the cause for action occurred during the accounting period covered by the financial
statements.

During 2015, Libya Company is the defendant in a breach of patent lawsuit. The lawyers
believe there is an 80% chance that the court will not dismiss the case and the entity will
incur outflow of benefits. If the court rules in favor of the claimant, the lawyers believe that
there is a 60% chance that the entity will be required to pay damages of P2,000,000 and a
40% chance that the entity will be required to pay damages of P1,000,000. Other amounts of
damages are unlikely. The court is expected to rule in late December 2016. There is no
indication that the claimant will settle out of court.
A 7% risk adjustment factor to the cash flows is considered appropriate to reflect the
uncertainties in the cash flow estimates.
An appropriate discount rate is 10% per year. The present value of 1 at 10% for one period is
0.91.
What is the measurement of the provision on December 31, 2015?
d. 1,246,336

Iriga Company issued the 2015 financial statements on March 1, 2016. The entity provided
the following data for the year ended December 31, 2015: Amount owing to another entity
for services rendered during December 2015 300,000
Estimated long service leave owing to employees in respect of past services 1,200,000
Estimated cost of relocating an employee from head office to a branch in another city
(employee will physically relocate in January 100,000 2016) Estimated cost of overhauling
machine every 5 years 150,000. What amount should be recognized as provision on
December 31, 2015?
a. 1,200,000

In November 5, 2015, a Dunn Company truck was in an accident with an auto driven by Bell.
Dunn received notice on January 15, 2016 of a lawsuit for P700,000 damages for personal
injuries suffered by Bell. The entity’s counsel believed it is probable that Bell will be awarded
an estimated amount in the range between P200,000 and P450,000 and no amount is a better
estimate of potential liability that any other amount because each point in the range is as
likely as any other. The 2015 financial statements were issued on March 1, 2016.
What amount of loss should be accrued on December 31, 2015?
c. 325,000

Tone Company is the defendant in a lawsuit filed by Witt in 2015 disputing the validity of
copyright held by Tone. On December 31, 2015, Tone determined that Witt would probably
be successful against Tone for an estimated amount of P400,000. Appropriately, a P400,000
loss was accrued by a charge to income for the year ended December 31, 2015. On December
31, 2016, Tone and Witt agreed to a settlement providing cash payment of P250,000 by Tone
to Witt, and transfer of Tone’s copyright to Witt. The carrying amount of the copyright on
Tone’s accounting records was P60,000 on December 31, 2016.
What would be the effect of the settlement on Tone’s income before tax in 2016?
c. 90,000 increase

1. A present obligation of the entity arising from past events, the settlement of which is
expected to result in an outflow from the enterprise of resources embodying economic
benefits
b. Liability

2. Not liabilities as yet but may become liabilities in the future

c. Contingent Liabilities

3. A liability that is expected to be settled in the norm al course of the enterprise's operating
cycle or is due to be settled within twelve months of the balance sheet date.
a. Trade accounts Payable

4. Amounts due trade creditors as a result of ordinary business transactions

a. Trade accounts Payable

5. Short-term obligations arising from the normal operating cycle which are evidenced by
written promises to pay.
b. Trade Notes Payable

6. Arise when, before the corresponding liability to the bank is paid, the goods are released to
the buyer in behalf of the bank which advanced the money for importation
b. Liabilities under trust receipts

7. Obligation supported by drafts drawn by the supplier on the purchaser of goods and
accepted by such purchaser.
a. Acceptances Payable

8. Liabilities for expenses incurred on or before the balance sheet date but payable at a later
date usually to specific persons, the amount determinable with reasonable accuracy.
d. Accrued expenses payable

9. Accrued liabilities which can be determined only approximately or the specific persons to
whom payment will be made may not be identified definitely but the existence of the liability
is certain
c. Estimated Liabilities

10. Cash dividends that have been declared but not yet paid as the balance sheet date.
d. Cash dividends payable

11. Arise from advance payments received from regular customers for merchandise to be
delivered or services to be performed in the future, or from overpayments, errors and other
causes.
a. Customers' accounts with credit balance

12. Consists of cash or property received but which are returnable to the depositor or which
have been collected or otherwise accumulated to be remitted to third parties.
d. Deposits payable

13. Consist of billed or uncollected revenues that are not recognized as income pending
completion of the earning process.
d. Deferred Credits

14. Portion of bonds, mortgages and other long-term indebtedness which are to be paid
within one year from the balance sheet date and which are not payable out of the special
retirement fund or from the proceeds of a new bond issue or by conversion into capital stock.
a. Current maturities of long-term debts

15. Obligation extending beyond the current operating cycle or one year, whichever is longer,
or through payable within one year will not be liquidated out of the existing current assets.
b. Non-current liabilities

16. Which of the following statements is correct?

d. A mere commitment to acquire goods or services does not require recognition as a liability
until the goods or services ordered have been received or rendered.
17. Statement 1 - Obligations may be legally enforceable as a consequence of a binding
contract or statutory requirement.
Statement 2 - Obligations may also arise from normal business practice, custom and a desire
to maintain good business relation or act in equitable manner.
a. Both statements are correct

18. Which of the following statements is not correct?

a. A decision by management of an entity to acquire assets in the future gives rise to a
present obligation.

19. An account which would be classified as a current liabilitiy is

a. Deposits payable

20. In annuity payments, the amount of the interest in each of the equal periodical payments
is
b. Decreasing

21. Of the following items, which one should be classified as a current liability?
b. A cash dividend declared before the balance sheet date when the date of payment is
subsequent to the balance sheet date

22. If the present value of a note issued in the exchange for a plant asset is less than its face
amount, the difference should be
b. Amortized as interest expense over the life of the note

23. Manila Company issued a note in exchange for cash solely. Assuming that the items below
differ in amount, the present value of the note at issuance is equal to the
c. proceeds received

24. An accrued expense is an expense

a. incurred but not yet paid
25. Rent revenue collected one month in advance should be accounted for as
b. current liability

26. An accrued expense can best be described as an amount

d. not paid and currently matched with earnings

27. Estimated liabilities are disclosed in financial statements by

d. appropriately classifying them as regular liabilities in the balance sheet

28. An overstatement of reported earnings may result from the failure to record
b. an accrued liability
29. Calculation of the amount of the equal periodic payments which would be equivalent to a
year 0 outlay of P1,000 is most readily affected by reference to a table which shows the
d. Present value of an annuity of 1

30. An unpaid workmen's compensation claim against his employer for injuries sustained in
an accident which has already occurred is an example of a (an)
d. estimated liability

31. Which of the following should not be classified as a current liability?

a. Stock dividends payable

1. Which of the following statements is correct?

d) Reacquired bonds held for future reissue (called treasury bonds) should be presented as a
contra-account in the long term liabilities section of the balance sheet

2. Which of the following statements is true?

b) The conversion of bonds to capital stock will not result in any gain or loss if the book value
method is used

3. The presence of an unamortized debt premiums indicates that at the time of issuance the
underlying obligations
c. carried interest above prevailing market rate

4. When all bonds mature at a single date they are called

a. straight bonds

5. Unamortized debt discount should be reported on the balance sheet of the issuer as
a. direct deduction form the face amount of the debt

6. Columbia Company issued bonds with a maturity amount of P200,000 and a maturity of
ten years from date of issue. If the bonds were issued at a premium, this indicates that
b. the nominal rate of interest exceeded the yield rate

7. If bonds are initially issued at a discount and the straight line method of amortization is
issued, interest expense in the earlier years
a. will exceed that which would have been had the scientific or compound interest method of
amortization been used

8. The bonds outstanding method of amortization of the premium or discount on bonds

b. is an application of the straight line method

9. Convertible subordinated debentures

d. can be exchanged for other securities
10. When the interest payment dates of a bond are May 1 and November 1 and the bond
issue is sold on June 1, the amount of cash received by the issuer will be
d. increased by accrued interest from May 1 to June 1

11. In theory (disregarding any other marketplace variables) the proceeds from sale of a bond
will be equal to
a. present value of the principal amount due at the end of the life of the bond plus the
present value of the interest payments made during the life of the bond, each discounted at
the prevailing market rate of interest

12. The stated interest rate on the face of a debt instrument affects the issue price of the
instrument. If the instrument is issued at a discount (assuming no other market place
variable), the prevailing market rate of interest is
b. above the stated interest rate

13. Theoretically, a bond payable should be reported at the present value of the principal plus
the present value of the interest discounted at the
b. effective interest rate for both principal and interest

14. Costs incurred in connection with the issuance of ten-year bonds which sold at a slight
premium should be
d. reported on the balance sheet as an asset and amortized over the ten year bond term

15. For a bond payable with a term of 20 years, originally issued at a discount and
outstanding for 10
years, the theoretically preferred presentation in the statement of the financial position is the
c. bond maturity value less the unamortized discount when the compound interest method of
unamortized is issued

16. ABC Corporation issued on December 31, 2008, P 800,000 of ten year general mortgage
bonds at 105. The premium on the said bonds should be presented in the company's balance
sheet at December 31, 2008 as
d. addition to bonds payable

1. A situation where the creditor for economic or legal reasons related to the debtor's
financial difficulties grants a concession to the debtor that it would not otherwise consider.
a. Troubled debt restructuring

2. The deliberate non-disclosure by companies of all their debt in order to make their
financial position look stronger
b. Off balance sheet financing

3. Wholly owned subsidiaries created by parent companies to assist in their financing

activities.
c. Captive finance companies

4. The restructuring of debt may take the form of

d. Any of these

5. Which of the following types of troubled debt restructuring is not considered a significant
economic transaction?
c. Modification of terms: total payment under new structure exceeds debt carrying value

6. A debtor that transfers assets to a creditor to fully settle a payable usually will recognize
d. an ordinary gain or loss on disposal of the assets, and an ordinary gain from the concession
granted in the restructuring of the debt

7. A debtor that grants an equity interest to the investor as a substitute for a liability
c. Must recognize a loss but not a gain on the issuance of its capital stock.

8. The forms or techniques of off balance sheet financial include

d. Any of these.

ACCA108

The cost of right of use asset comprises all, except

D. Estimated cost of dismantling, removing or restoring the underlying asset for which the
lessee has no present obligation

A lessee with a lease containing a purchase option that is reasonably certain not to be
exercised should depreciate the right of use asset over
Useful life of the asset or the lease term, whichever is shorter

The right of use asset is reported as

Noncurrent as separate line stem

The lessee may apply the operating lease model under what condition?
Both short-term lease and low value lease

A short-term lease is defined as

Twelve months or less

The lease payments include all of the following, except

The lessee's obligation to pay executory cost

What is the interest rate used when the implicit interest rate cannot be determined?
The lessee's incremental borrowing rate
What is the treatment of initial direct cost incurred by the lessee in a finance lease?
Added to the carrying amount of the right of use asset

If the residual value of a underlying asset is greater than the amount guaranteed by the
lessee
The lessee has no obligation related to the residual value.

A six-year finance lease entered into on December 31 of the current year specified equal
annual lease payments due on December 31 of each year. The first annual lease payment
paid on December 31 of the current year consists of which of the following?
Lease liability

On January 1, 2020, ABC Company leased machinery from XYZ Company for a 10-year period.
The useful life of the asset is 20 years. Equal annual payments under the lease are P200.000
and are due on January 1 of each year starting January 1, 2020. The present value on January
1, 2020 of the lease payments over the lease term discounted at implicit interest rate of 10%
was PI,352,000. The lease provides for a transfer of title to the lessee upon expiration of the
lease term
What is the lease liability on December 31, 2020? 1,152,000
What is the lease liability to be reported as noncurrent on December 31, 2020? 1,067,200
What is the interest expense for 2020? 115,200
What is the depreciation for 2020? 67,600

On December 31, 2020, Roe Company leased a machine from Colt Company for a five-year
period. Equal annual payments under the lease are P1,050,000 including P50.000 annual
executory cost and are due on December 31 of each year. The first payment was made on
December 31, 2020, and the second payment was made on December 31, 2021. The five lease
payments are discounted at 10% over the lease term. 5/13 Correct answer. 1/1p Total points:
1/1p Correct answer. 1/1p Total points: 1/1p Correct answer. 1/1p Total points: 1/1p The
present value of minimum lease payments at the inception of the lease and before the first
annual payment was P4,170,000.
On December 31, 2021, what amount should be reported an lease liability? 2,487,000

On January 1, 2020, ABC Company entered into a 5-year lease of a floor of a building with the
following terms: Annual rental for the first two years payable at the end of each year 200,000
Annual rental for the next three years payable at the end of each year 300,000 Initial direct
cost paid by lessee 100,000 Leasehold improvement 250,000 Present value of restoration cost
required by contract 50,000 Useful life of building 20 years Implicit interest rate 8% Discount
rate for the restoration cost 5% PV of an ordinary annuity of 1 at 8% for two periods 1.783 PV
of an ordinary annuity of 1 at 8% for three periods 2.577 PV of 1 at 8% for two periods 0.857
The lease liability on January 1, 2020 should be: 1,019,147
The cost of right of use asset at of the commencement date should be? 1,169,147
The depreciation for 2020 should be; 233,829

ABC Company entered into a lease of building on January 1, 2020 with the following
information: Annual rental payable at the end of each year 600,000 Lease term 5 years Useful
life building 20 years Implicit interest rate 10% PV of an ordinary annuity of 1 at 10% for 5
periods 3.79 The lease contained an option for the lessee to extend for a further 5 years. At
the commencement date, the exercise of the extension option is not reasonably certain..
After 2 years on January 1, 2022, the lessee decided to extend the lease for a further 5 years.
New annual rental payable at the end of each year 800,000 New implicit interest rate 8% PV
of an ordinary annuity of 1 at 8% for 5 periods 3.99 PV of 1 at 8% for 3 periods 0.79 PV of an
ordinary annuity of 1 at 8% for 3 periods 2.58
What is the lease liability on December 31, 2021? 1,491,540
What is the new lease liability on January 1, 2022? 4,069,680
What is the carrying amount of right of use asset on January 1, 2022? 3,942,540

A lease had a ten-year finance lease requiring equal annual payments. The current portion of
the lease obligation at the end of year 1 is
the reduction of the lease obligation in year 2

Lessee Company leased a machine with an estimated useful life of 20 years from Lessor
Company. The 10- year noncancelable lease the title to the machine transfers to Lessee
Company provides that at the end of the lease term. Lessee Company accounted for the lease
as a finance lease and recorded an asset and a liability in its record. The leased asset should
be depreciated by Lessee Company over
20 years

Which of the following is not one of the criteria when determining whether a contract is or
contains a lease?
Identified liability

According to PFRS 16 lease payments exclude which of the following?

Payments for executory cost

The discount rate used by the lessee in accounting for leases is the (select the best option)
the implicit rate if determinable, otherwise the lessee's incremental borrowing rate

A right of use asset is initially measured at cost and subsequently measured using the
any of the three options

Initial direct costs incurred by a lessee are

capitalized as cost of right-of-use asset

The lessee’s lease liability for a finance lease would be periodically reduced by
Lease payment less the portion allocable to interest
Which is not part of the lease payments?
Any residual value at the end of the lease term

On January 1, 2020, Northstar Company entered into an 8-year lease of a floor of building
with useful life of 15 years with the following terms: Annual rental for the first three years
payable at the end of each year 300,000 Annual rental for the next five years payable at the
end of each year 400,000 Implicit interest rate 10% PV of an ordinary annuity of 1 at 10% for
three periods 2.49 PV of an ordinary annuity of 1 at 10% for five periods 3.79 PV of at 10% for
three periods 0 75 PV of at 10% for three periods 0.75 The lease provides for neither a
transfer of title to the lessee nor a purchase option.
What is the lease liability on January 1, 2020? 1,884,000
What is the interest expense for 2020? 188,400
What is the interest expense for 2023? 151,460
What the lease liability on December 31, 2023? 1,266,064

At the beginning of current year, ABC Company entered into a ten-year noncancelable lease
requiring year-end payments of Pi,000,000. ABC’s incremental borrowing rate is 12%, while
the lessor’s implicit interest rate, known to Ashe, is 10%. P t l f t f di it f t i d 6 145 t 10% d 5
650 t 12% Present value factors for an ordinary annuity for ten periods are 6.145 at 10%, and
5.650 at 12%. On the same date, Ashe Company paid initial direct cost of P200,000 in
negotiating and securing the leasing arrangement. Ownership of the property remains with
the lessor at expiration of the lease. The leased property has an estimated economic life of 12
years.
What amount should be capitalized as cost of the right of use asset? 6,345,000
What is the depreciation for the current year? 634,500
What is the lease liability at the end of current year? 5,759,500

On January 1, 2020, ABC Company signed a long-term lease for an office building. The terms
of the lease required ABC Company to pay P100,000 annually, beginning December 31, 2020,
and continuing each year for 30 years. On January 1, 2020, the present value of the lease
payments is P1,125,000 at the 8% interest rate implicit in the lease.
What amount should be reported as lease liability on December 31, 2020? 1,115,000

ABC Company leased many assets and capitalized most of the leased assets. On December 31,
2020, the entity had the following balances in relation to a leased equipment: Right of use
asset 4,000,000 Accumulated depreciation 2,450,000 Lease liability . 1.300,000 Depreciation
has been recorded up to the end of the current year and no accrued interest is involved. On
December 31, 2020, the entity decided to purchase the equipment for Pi,600,000 cash.
What is the cost of the actual purchase of the leased equipment? 1,850,000

At the beginning of current year, ABC Company leased an equipment from a lessor with’ the
following pertinent information: Annual rental payable at the end of each year 500,000 Lease
term 8 years Useful life of equipment . 10 years Implicit interest rate 10% PV of an ordinary
annuity of 1 for 8 periods at 10% 5.33 Present value of 1 for 8 periods at 10% 0.47 The entity
has the option to purchase the equipment on the expiration of the lease term by paying
P500.000. There is reasonable certainty that the entity shall exercise the option. The entity
incurred initial direct cost of P200.000.
What is the lease liability at year-end? 2,690,000
What is the interest expense for current year? 290,000

In a direct financing lease, unearned interest income

Should be amortized over the lease term using the interest method

On January 2, 2020, an entity entered into an agreement to sell a machine to a bank and
lease it for a period of 3 years. At that time, the main facts about the machine and the lease
were: Selling price, P600,000, carrying amount, P210,000, Fair value, P600,000, remaining
economic life, 30 years; lease payments, P69,000 (payable in arrears on December 31 each
year). Interest rate implicit in the lease is 8%. In accounting for the arrangement, the seller-
lessee would recognize in the determination of its profit or loss for the year ended December
31,2020
P390,000 gain from sale and P69,000 lease expense

On January 1, 2019, an entity sold equipment with a carrying amount of P1,000,000 and a
remaining useful life of 10 years for P1,500,000. The entity immediately leased the equipment
back under a 10-year finance lease with a present value of P1,500,000 and will depreciate the
equipment using the straight line method. The first annual lease payment of P244,120 was
made on December 31, 2019. The implicit interest rate in the lease is 10%. On December 31,
2019, what amount should be reported as unearned gain on equipment sale?
450,000

On January 1, 2016, an entity signed a 12- year lease for building. The entity had an option to
renew the lease for an additional 6 years on or before January 1, 2021. During January 2019,
the entity made improvements to the buildings costing P 4,500,000 with useful life of 10
years. On December 31, 2019, the entity intended to exercise the renewal option. What is the
carrying amount of the leasehold improvement on December 31, 2019?
4,050,000

The classification of a lease is normally carried out

at the inception of the lease

The classification of a lease as either operating lease or finance lease on the part of lessor is
based on
The transfer of the risks and rewards of ownership

The right of use asset is reported as

Noncurrent as separate line stem
On January 1, 2020, Alter Company owned an asset with a book value of P200,000. On this
date, the asset was sold for P300,000 to a lessor and immediately leased back for a period of
5 years. The leased back is an operating lease. If the fair value of asset is P240,000, what
amount of realized gain from sale should the company recognize on January 1, 2020?
P40,000

On December 31, 2018 Corral Company enters into a five-year lease agreement with Island
Company (lessee) involving an equipment (front-end loader). The equipment has a cost of
P85,000 and with a fair value/ selling price of P100,000. Island Company will pay P23,237.09
per year at the beginning of each year. The equipment has an estimated fair value of P5,000
at the 5-year lease term. The imputed rate of interest at the time lease contract was signed is
10%. The contract is a sales type. If the residual value is guaranteed by the lessee, what are
the amounts of sales and cost of sales should the lessor recognize on December 31, 2018
respectively?
P100,000 and P85,000

The lease payments include all, EXCEPT

The lessee’s obligation to pay executory cost

The primary difference between a direct financing lease and a sales type lease is the
Recognition of the manufacturer or dealer profit at the inception of the lease

On December 31, 2020 Island Company enters into a five-year lease agreement with Corral
Company (lessor) involving an equipment (front-end loader). The equipment has a cost of
P100,000 and with a fair value of P100,000. Island Company will pay P23,237.09 per year at
the beginning of each year. The equipment has an estimated fair value of P5,000 at the end of
the 5- year lease term. The imputed rate of interest at the time the lease contract was signed
is 10%. If, at the end of the lease term, the fair value of the residual value is P3,000, what
amount of gain or loss should Island record?
P2,000 loss

Shoemaker Corp. leased equipment from Canon Inc. on January 1,2020 for a 5-year period.
Equal payments under the lease are P600,000 and are due on December 31 of each year. The
first payment was made on December 31,2020. The interest rate contemplated by Shoemaker
and Canon is 10%. The cash selling price of the equipment is P2,274,472 and the cost of the
equipment on Canon’s accounting records is P1,800,00. The lease is appropriately recorded as
a sales type lease. What amount of interest income should Canon Company report in its
December 31, 2022 income statement?
P149,211

Net investment in a direct financing lease is equal to

Cost of the asset plus initial direct cost paid by the lessor
It is the date on which the lessee is entitled to exercise the right to use the underlying asset
Commencement of the lease

On January 2, 2020, an entity entered into an agreement to sell a machine to a bank and
lease it for a period of 3 years. At that time, the main facts about the machine and the lease
were: Selling price, P600,000, carrying amount, P210,000, fair value, P600,000; remaining
economic life 3 years; lease payments, P232,818 (payable in arrears on December 31 each
year) Interest rate implicit in the lease is 8%. In accounting for arrangement, the seller lessee
would recognize in the determination of its profit or loss for the year ended December 31,
2020.
P130,000 realized gain, P200,000 depreciation and P48,000 finance cost

On December 31, 2020 Island Company enters into a five-year lease agreement with Corral
Company (lessor) involving an equipment (front-end loader). The equipment has a cost of
P100,000 and with a fair value of P100,000. Island Company will pay P23,237.09 per year at
the beginning of each year. The equipment has an estimated fair value of P5,000 at the end of
the 5- year lease term. The imputed rate of interest at the time the lease contract was signed
is 10%. If the residual value is guaranteed by the lessee, what is the carrying value of the
lease liability as of December 31, 2023?
P25,256.66

The lease receivable in a direct financing lease is

The present value of lease payments

On January 2,2020, Steward Co. signed an 8-year non cancellable lease for new machine
requiring, P60,000 annual payments at the beginning of the year. Steward’s borrowing rate is
10%. Present value of annuity of 10% for eight periods is 5.335 while the present value of 10%
for eight periods in advance is 5.868. The machine has an estimated life of 12 years with no
salvage value. Title passes to steward at the lease expiration date. Steward used straight line
depreciation for all its plant assets. For 2020, Steward should record depreciation expense for
the leased machine at
P29,340

On December 31, 2020 Corral Company enters into a five-year lease agreement with Island
Company (lessee) involving an equipment (front-end loader). The equipment has a cost of
P85,000 and with a fair value/ selling price of P100,000. Island Company will pay P23,237.09
per year at the beginning of each year. The equipment has an estimated fair value of P5,000
at the 5-year lease term. The imputed rate of interest at the time lease contract was signed is
10%. The contract is a sales type. If the residual value is not guaranteed by the lessee, what
are the amounts of sales and cost of sales should the lessor recognize on December 31, 2020,
respectively?
P96,895.40 and P81,895.40

The inception of the lease is the

Earlier of the date of the lease agreement or date of commitment by the parties to the
principal provisions.

One of the four determinative criteria for a finance lease is that the present value at the
beginning of the lease term of the lease payments equals or exceeds
90 percent of the fair value of the underlying asset

On December 31, 2020 Island Company enters into a five-year lease agreement with Corral
Company (lessor) involving an equipment (front-end loader). The equipment has a cost of
P100,000 and with a fair value of P100,000. Island Company will pay P23,237.09 per year at
the beginning of each year. The equipment has an estimated fair value of P5,000 at the end of
the 5- year lease term. The imputed rate of interest at the time the lease contract was signed
is 10%. If residual value is guaranteed by the lessee, what is the amount of annual
depreciation should Island Company recognize?
P19,000

It is the aggregate amount included in the determination of net profit for the period in
respect of current tax and deferred tax.
Tax expense

A deferred tax asset is recognized for deductible temporary differences and operating loss
carry forward when
It is probable that taxable income will be available against which the deferred tax asset can
be used.

Which is correct about deferred tax assets and liabilities?

Deferred tax assets are netted against deferred tax liabilities if they relate to the same tax
authority.

Which of the following differences would result in future taxable amount?

Expenses or losses that are deductible before they are recognized in accounting income.

In the year-end statement of financial position, ABC Company had income tax payable of
P260,000 and a deferred tax asset of P400.000. The entity had reported a deferred tax asset
of P300.000 at the beginning of current year. No estimated tax payments were, made during
the current year. The entity determined that it was probable that the deferred tax asset
would be realized. In the income statement for the current year, what amount should be
reported as total income tax expense?
160,000

Piston Company reported pretax financial income of P6,200,000 for the current year. Included
in other income was P300,000 of interest revenue from government bonds held by the entity.
The income statement also included depreciation expense of P500,000 for a machine costing
P3,000,000. The income tax return reported P700,000 as depreciation on the machine. The
enacted tax rate is 30% for the current year and future years.
What is the current tax expense for the current year? 1,710,000

Jett Company has established a defined benefit pension plan for an employee. Annual
payments under the pension plan are equal to the employee's highest lifetime salary
multiplied by 3% multiplied by number of years with 'the entity. On December 31, 2020, the
employee had worked for Jett Company for 15 years. The current salary is P500.000. The
employee is expected to retire in 5 years and the salary increases are expected to average 4%
per year during that period. The employee is expected to live for 6 years after retiring and will
receive the first annual pension payment one year after retirement. The discount rate is 12%.
Future value of 1 at 4% for 5 periods 1.217 PV of an ordinary annuity of 1 at 12% for 6 periods
4.111 PV of 1 at 12% for 5 periods 0.567
What is the projected benefit obligation on December 31, 2020?
638,269

The service cost of a defined benefit plan comprises all. Except

Net interest

Which of the following components of defined benefit cost shall be recognized through other
comprehensive income?
Remeasurements

Plan assets are assets held by a long-term benefit fund and must satisfy all of the following
conditions, except
The assets in the fund can be returned to the entity even if the remaining assets are
insufficient to meet all employee benefit obligations.

When an entity amends a pension plan, past service cost should be

Reported as an expense in the period the plan is amended.

The formula in a defined benefit plan

Defines the benefits that the employee will receive at the time of retirement.

Which statement is incorrect concerning the recognition and measurement of a defined

benefit plan?
The defined benefit plan must be fully funded.

Geneva Company has established a defined benefit plan indicating a plan formula for annual
benefit equal to 2% multiplied by the number of years in service multiplied by the final year's
salary. The annual benefit is payable at the end of each year. An employee was hired by the
entity on January 1, 2000 and expected to retire on December 31, 2044. The employee's
retirement is expected to span 21 years. The employee's final salary at retirement is expected
to be P800,000 and the appropriate discount rate is 8%. On January 1, 2020, the plan formula
was amended by increasing the percentage from 2% to 3%. The amendment was made
retroactive to consider past service years. The present value of an ordinary annuity of 1 at 8%
for 21 periods is 10.02 and the present value of 1 at 8% for 25 periods is 0.15.
What is the projected benefit obligation before amendment on January 1, 2020? 480,960

Which statement is not true concerning the recognition and measurement of a defined
contribution plan?
Any overpayment contribution at the end of the period shall he amortized.

It is an insurance policy issued by an insurer that is not a related party of the reporting entity
and the proceeds of the policy can be used only to pay employee benefits under a defined
benefit plan.
Qualifying insurance policy

ABC Company received the following report from the independent actuary in relation to a
defined benefit pension plan at yearend: Pension benefits paid 135,000 PBO at year-end
2,160,000 Interest expense on PBO 120,000 Discount rate 8%
What is the current service cost for the current year? 675,000

ABC Company provided the following data for the current year: December 31 January 1
During year Fair value of plan assets 9,000,000 Pension benefits paid 700,000 Contribution to
the fund 1,000,000 Expected return on plan assets 1,200,000 Interest income on plan assets
900,000 Fair value of plan assets 9,900,000
What is the remeasurement gain or loss on plan assets for the current year? 300,000 loss

ABC Company provided the following information pertaining to a defined benefit pension
plan for the current year: Prepaid pension cost, January 1 20,000 Current service cost 190,000
Interest expense on PBO 380,000 Interest income on plan assets 400,000 Past service cost
during the year 500,000 Employer contribution 400,000
What is the accrued pension cost at year-end? 250,000

ABC Company provided the following information related to a defined benefit plan for the
current year: Current service cost 30,000 Benefits paid 31,000 Contribution to the fund 21,000
Fair value of plan assets: January 1 2,100,000 December 31 2,400,000 Projected benefit
obligation. January 1 2,200,000 December 31 2,500,000 Past service cost for the current year
115,000 At the beginning of current year, the discount rate and expected rate of return are
5% and 7% respectively. At the end of current year, the discount rate and expected rule of
return are 6% and 8% respectively.
What amount should be recognized as employee benefit expense in income statement for the
current year? 150,000
What is the actual return on plan assets? 310,000
What is the actuarial loss arising from the increase in projected benefit obligation? 76,000
What is the net remeasurement gain or loss for the current year? 129,000 gain
What amount should be reported as prepaid or accrued benefit cost at year-end? 100,000
accrued

A pension asset is reported when

Plan assets at fair value exceed the projected benefit obligation

Interest cost included in the net pension cost recognized under a defined benefit plan
represents the
Increase in the projected benefit obligation due to the passage of time.

Vested benefits, except

Are those for employees under probationary status.

What is the relationship between the amount funded and the amount reported for defined
benefit cost?
Defined benefit cost may be more than, equal to, or less than the amount funded

In computing the current service cost component of pension expense

The defined benefit obligation using future compensation level provides a realistic measure
of present pension obligation and expense.

ABC Company determined that it has an obligation relating to employees' rights to receive
compensation for future absences attributed to employees' services already rendered. The
obligation relates to rights that vest, and payment of the compensation is probable. The
entity's obligations at year-end are reasonably estimated as follows: Vacation pay 1,100,000
Sick pay 900,000
What amount should be reported as liability for compensated absences at year-end?
2,000,000

Which of the following criteria is not required for the recognition of a liability for
compensated absences?
Payment of the obligation will require the use of' current asset

Short-term employee benefits are described by all, except

Short-term employee benefit obligations are measured on a discounted basis.

Employees are each entitled to 20 days of paid holiday leave per year. Unused holiday leave
cannot be carried forward and does not vest. What is the holiday leave?
Short-term employee benefit

An entity made a public announcement of a commitment to a voluntary redundancy plan.

The entity has an obligation to pay employees that choose voluntary redundancy a lump sum
equal to twice their gross annual salary. What is the obligation to pay employees that choose
voluntary redundancy?
Termination benefit

In accounting for paid absences, the difference between vested rights and accumulated rights
is
Vested rights are not contingent upon an employee's future service.

If the payment of employees' compensation for future absences is probable, the amount can
be reasonably estimated and the obligation relates to rights that accumulate, the
compensation should be
Accrued if attributable to employees' services already rendered.

The amount of the liability for paid absences should be based on

Either the current rate of pay in effect when the employees earn the right to compensated
absences or the expected rate of pay expected to be paid when employee use compensated
time.

At the beginning of current year, ABC Company announced a decision to close a factory
located in Mindanao and terminate all 200 employees as a result of economic downturn. The
entity shall pay P20,000 per employee upon termination. However, to ensure that the windup
of the factory occurs smoothly and all remaining customer orders are completed, the entity
needs to retain at least 20% of employees until closure of the factory in eight months. As a
result, the entity announced that employees who agree to stay until the closing of the factory
shall receive P60,000 payment at the end of eight months in addition to receiving their
current wage throughout the period of closure instead of the P20,000. Based on this offer, the
entity expected to retain 50 employees until the factory is closed.
What is the total benefit under the termination plan? 6,000,000
What is the termination benefit? 4,000,000
What is the short-term employee benefit? 2,000,000

ABC Company had pretax financial income of P2,500,000 in the current year. The entity made
corporate estimated tax payment in the amount of 180,000 during the current year. To
compute the provision for income tax, the following information was provided: Interest
income received 360,000 Tax depreciation in excess of financial statement amount 160,000
Rent received in advance 280,000 Corporate tax rate 30%
What amount of permanent difference between book income and taxable income existed at
year-end? 360,000
What amount of current tax expense should be reported? 678,000
What amount of income tax payable should be reported? 498,000
What amount of total tax expense should be reported'? 642,000

A temporary difference which would result in a deferred tax asset is

Rent received in advance included in taxable income at the time of receipt but deferred for
accounting purposes
An entity classified a noncurrent asset accounted for under the cost model as held for sale at
the current year end. Because no offers were received at an acceptable price, the entity
decided at the end of next year not to sell the asset but to continue to use it. The asset shall
be measured at the end next year at what amount?
The lower of carrying amount on the basis that the asset had never been classified as held for
sale and recoverable amount

A change in accounting policy requires what kind of adjustment to the financial statements?
Retrospective adjustments

On January 1, 2019, ABC Company purchased a machine for P2,750,000. The machine was
depreciated using the sum of years’ digits method based on a useful life of 10 years with no
residual value. On January 1, 2020, the entity changed to the straight line method of
depreciation. What is the depreciation for 2020?
250,000

Close family members of an individual include all of the following, except\

Brothers and sisters of the individual

If the fair value less cost of disposal is lower than the carrying of a noncurrent asset classified
as held for sale, the difference is
Accounted for as an impairment loss

As an inducement to enter a lease, a lessor granted a lessee twelve months of free rent under
a five-year operating lease. The lease was effective at the beginning of the current year and
provides for monthly rental payments to begin at the beginning of the next year. The lessee
made the first rental payment at the end of the current year. In the income statement for the
current year, the lessor shall report rent revenue equal to
One-fifth of the total cash to be received over the life of the lease

Short term employee benefits include all except

Profit-sharing and bonuses payable in more than twelve months after the end of the
reporting period

In accounting for a defined benefit plan

An appropriate funding must be established to ensure that enough fund would be available
at retirement

The disclosure of accounting policies is important to financial statement users in determining

Whether accounting policies are consistently applied from year to year

These are differences that will result in future taxable amount in determining taxable profit
of future periods when the carrying amount of the asset or liability is recovered or settled
Taxable temporary differences
On January 1, 2018, ABC Company purchased for P4,800,000 a machine with a useful life of
ten years and a residual value of P200,000. The machine was depreciated by the double
declining balance. The entity changed to the straight line method on January 1, 2020. The
residual value did not change. What is the accumulated depreciation on December 31,2020?
2,087,000

ABC Company carried a provision of P2,000,000 in the draft financial statements for the year
ended December 31, 2020 in relation to an unresolved court case. On January 31, 2021, when
the financial statements for the year ended December 31, 2020 had not yet been authorized
for issue, the case was settled and the court decided the final total damages to be paid by the
entity at P3,000,000. What amount should be adjusted on December 31,2020 in relation to
this event?
1,000,000

When a component of an entity was discontinued during the current year, the loss on
disposal should
Include associated employee termination cost

On September 1, 2020, ABC Company approved a formal plan to sell a business segment. The
sale will occur in February 2021. The segment had operating income of P5,000,000 form
January 1 to August 31, and P1,000,000 for the remainder of the year 2020. On December 31,
2020, the carrying amount of the segment was P8,000,000 and the recoverable amount was
P10,000,000. The income tax rate is 35%. How much will be reported as income from ordinary
activities of the discontinued segment, net of tax, for the year 2020?
3,900,000

What is the presentation of the results from discontinued operation in the income
statement?
The entity shall disclose a single amount on the face of the income statement below the
income from continuing operations.

On January 1, 2020, ABC Company agreed to grant its employees two weeks vacation each
year with the stipulation that vacation earned each year can be taken the following year. For
the year ended December 31, 2020, the employees each earned an average of P10,000 per
week. Two hundred vacation weeks earned in 2020 were not taken during 2020. Wage rates
for employees rose by an average of 10% by the time vacation actually were taken in 2021.
What amount of wages expense related to 2020 vacation time should be reported in 2021?
200,000

An entity made a public announcement of a commitment to a voluntary redundancy plan.

The entity has an obligation to pay employees that choose voluntary redundancy a lump sum
equal to twice their gross annual salary. What is the obligation to pay employees that choose
voluntary redundancy?
A termination benefit

An entity accounted for land using the revaluation model. On October 1, 2019, the entity
classified a land as held for sale. At that date, the carrying amount of the land was P5,000,000
and the balance in the revaluation surplus was P1,500,000. At the same date, the fair value of
the land was estimated at P5,500,000. The estimated cost of disposal is P100,000. On
December 31, 2019, the fair value less cost of disposal of the land did not change. On October
1, 2020, the land was sold for P7,000,000.
What amount should be reported as gain on disposal of land in 2020?
1,600,000
Which of the following is the most likely item to result in a deferred tax asset?
Unearned revenue

ABC Company failed to accrue warranty cost of P100,000 on December 31, 2019.In addition, a
change from straight line to accelerated depreciation made at the beginning of 2020 resulted
in a cumulative effect of P60,000 on retained earnings. What pretax amount should be
reported as prior period error in 2020?
100,000

At the beginning of current year, ABC Company leased a building to XYZ Company under an
operating lease for ten years at P500,000 per year payable the first day of each lease year.
ABC Company paid P150,000 to a real estate broker as initial direct cost. The building is
depreciated at P120,000 per year. ABC Company incurred insurance and property tax expense
totaling P90,000 for the current year. What is the net rent income for the current year?
275,000

An entity accounted for noncurrent assets using the cost model. On July 1, 2020, the entity
classified an equipment as held for sale. At that date, the carrying amount was P5,000,000,
the fair value was estimated at P3,500,000 and the cost of disposal at P100,000. On
December 31, 2020, the equipment was sold for net proceeds of P2,500,000. What amount
should be reported as impairment loss for 2020?
1,600,000

All of the following events would be classified as non-adjusting events after reporting period,
except
A mistake was discovered in the calculation of the allowance for uncollectible accounts
receivable

How should the effect of a change in accounting estimate be accounted for?

In the period of change and future periods if the change effects both

A change from an accounting principle that is not generally accepted to one that is generally
accepted should be reported as
An adjustment of retained earnings
A change in reporting entity is accounted for as
Change in accounting policy

When it is difficult to distinguish between a change in accounting estimate and a change in

accounting policy, the change is treated as
Change in accounting estimate with appropriate disclosure

A change in accounting policy includes all of the following, except

A change from one method of depreciation to a different method of depreciation.

Which is the first step within the hierarchy of guidance when selecting accounting policies?
Apply a standard from IFRS if it specifically relates to the transaction.

ABC Company had two operating divisions, one manufactures machinery and the other
breeds and sells horses. Both divisions are considered separate components. The horse
division has been unprofitable and on November 15, 2020, the entity adopted a formal plan
to sell the division. At December 31, 2020, the component was considered held for sale. The
sale was completed on April 30, 2021. On December 31, 2020, the carrying amount of the
assets of the horse division was P2,500,000. On that date, the fair value of the assets less cost
of disposal was P2,000,000. The before-tax operating loss of the horse division for the year
was P750,000. The after-tax income from continuing operations of the entity for 2020 was
P4,000,000. The income tax rate is 30%.
What amount should be reported as net income for 2020? 3,125,000

Which statement is incorrect concerning the presentation of the discontinued operation in

the statement of financial position?
Depreciable assets of the component held for sale shall be depreciated

During the current year, ABC Company decided to change from the FIFO method of inventory
valuation to the weighted average method. Inventory balances under each method were as
follows: FIFO Weighted average January 1 3,600,000 3,850,000 December 31 3,950,000
4,150,000 What amount should be reported as the pretax effect of the accounting change in
the statement of changes in equity for the current year?
250,000 addition

While preparing the financial statements for 2020, ABC Company discovered computational
errors in the 2018 and 2019 depreciation expense. These errors resulted in overstatement of
each year’s income by P50,000, net of income tax. The net income for 2020 is correctly
reported at P1,000,000. The following amounts were reported in the previously issued
financial statements: 2019 2018 Retained earnings, January 1 1.400,000 1.000,000 Net
income 300.000 400,000 Retained earnings, December 31 1,700,000 .400,000 What is the
balance of retained earnings on December 31. 2020?
2,600,000
During the year ended December 31, 2020, the following events occurred at ABC Company: a.
It was decided to write off P400,000 from inventory which was over two years old as it was
obsolete. b. Sales of P500,000 had been omitted from the financial statements for the year
ended December 31, 2019. What amount should be reported as a prior period error in the
financial statements for 2020?
500,000

On October 1, 2020, ABC Company approved a formal plan to sell a business segment. The
sale will occur on March 31, 2021. The segment had income of P7,500,000 from January 1 to
September 30 and P1,500,000 for the quarter ended December 31,2020. On December 31,
2020, the carrying amount of the assets of the segment was P12,000,000 and the fair value
less cost of disposal was P10,500,000. The income tax rate is 30%.
What amount should be reported as income from the discontinued segment for 2020?
5,250,000

Why is an entity permitted to change an accounting policy?

The change would result in the financial statements providing more reliable and relevant
information about financial position, financial performance and cash flows.

ACCL103
Anna Marie and Christian Rey are partners. Anna, being a managing partner, invited Arlene to
associate with her in her share in the partnership. In this case:
Anna may have Arlene as an associate in her share even without the consent of Christian

Every contract of partnership having a capital of P3,000.00 or more in money or property

shall appear in a public instrument which must be recorded in the SEC. Failure to comply with
said requirements
Will not affect the liability of the partnership and the members thereof to third persons

A limited partner shall not become liable as a general partner unless:

All of the above

Statement 1: The retirement, death, insolvency or civil interdiction of a limited partner

dissolves the limited partnership. Statement 2: Agency is an accessory contract.
Both statements are false

A capitalist partner engaged for his own account in an operation which is of the kind of
business in which the partnership is engaged. Said partner can be
Compelled to bring to the common fund of the partnership any profits accruing to him from
his transactions

A substituted limited partner is

As assignee admitted to all the rights of a limited partner
Refers to persons who represent themselves, or consent to another or others to represent
them to anyone that they are partners
Partner by estoppel

Every contract of partnership having a capital of P3,000.00 or more in money or property

shall appear in a public instrument which must be recorded in the SEC. Failure to comply with
said requirements:
Will not render the liability of the partnership and the members thereof to third persons

Bears the risk of things contributed to the partnership

Partner contributing usufructuary rights

One who takes charge in the winding up of the partnership affairs upon dissolution
Liquidating partner

Partner whose connection with the firm is known to the public

Ostensible

In case there is none appointed as manager in the partnership, the right to manage is usually
conferred upon the
Partners

Assume a limited partner named "Reyes, Dong, and Dela Rosa Co. Ltd." was formed on March
19, 2021 by Reyes as a general partner, and Dong and Dela Rosa as limited partners. In 2026,
Dong Y. and Dela Rosa L. got married. Did the marriage dissolve the partnership?
No, the marriage did not dissolve the partnership

This is the order of preference in the liquidation of a general partnership

Outside creditors; partners as creditors; partners capital; partners profits

Sophia Marie M., Ayessa Missy U., and John Patrick A. are partners. Their contributions are as
follows: Sophia, P60,000.00; Ayessa P40,000.00; and JP services. The partners agreed to
divide the profits and losses in the following proportions: Sophia, 35%; Ayessa, 25%; and JP
40%. If there is a loss of P10,000.00, how much should the said loss of P10,000.00 be shared
by the partners?
Sophia, P6,000.00; Ayessa P4,000.00; and JP nothing

If a partner is insolvent, the first order of preference in the distribution of his assets is
Separate creditors of the debtor

One or more but less than all the partners have no authority to perform the following acts,
except:
Convey partnership property in the ordinary course of partnership business

Everlyn M. is an industrial partners. Besides his services, he also contributed capital to the
partnership. There is no agreement or stipulation as to the profits or losses. The share of
Everlyn in the profit is
Combination of just and equitable share and pro-rata to her contributions

Statement 1: Guinnese Jane I. is a partner in a universal partnership of all profits. She

subsequently won lotto. The prize money will belong to the partnership. Statement 2: A
stipulation which excludes one partner from sharing in the losses shall be unenforceable
Both statements are false

Which of the following is considered prima facie evidence of the existence of a partnership?
The receipts by a person of a share of profits

If a partner is insolvent, the first order of preference in the distribution of his assets is
Separate creditors of the debtor

Chelsy D., Sophia C., and Krizzia M., capitalist partners, each contributed P30,000.00;
P20,000.00; and P10,000.00, respectively; and Khayl O. the industrial partner. Suppose
Britney L. is the creditor of the firm to the amount of P180,000.00. How can Britney recover
the P180,000.00?
Britney must sue the firm and get P60,000.00 from the partnership. Britney can still recover
the balance of P120,000.00 from the four partners jointly

Statement 1: If the agent is authorized to borrow, he himself can be the lender. Statement 2:
The contract of agency is extinguished by the insanity or insolvency of the agent or the
principal
Both statements are true

In three of the following instances, the certificate of a limited partnership may be amended.
Which is the exception?
Death of a general partne

Statement 1: If an agent contracts in the name of the principal with a third person, without
the principal gave no such authority to the agent, the contract shall be unenforceable.
Statement 2: The surname of a limited partner should not appear in the partnership name,
otherwise he is liable as a general partner.
Both statements are true

Statement 1: An industrial partner is not entitled to any share in firm capital upon
dissolution, but is limited to his share in profit as compensation for his service. Statement 2:
The creditors of each partner shall be preferred to those of the partnership as regards the
property of said partner.
Both statements are true

In case of imminent loss of the business of the partnership, the following partners are
required to give additional contribution, except:
Industrial partners

Statement 1: A partnership is terminated on dissolution. Statement 2: A limited partnership is

one formed by two or more persons having as members one or more general partners and
only one limited partner.
Both statements are false

Which of the following contracts of partnership will not affect its validity even if not in a
public instrument?
Partnership having a capital of P3,000.00 or more

Which of the following may be a cause for involuntary dissolution?

insolvency of any partner

Without the written consent or ratification of the specific act by all the limited partners, a
general partner or all of the general partners have no authority to:
All of the above

Statement 1: A general partnership is dissolved by the death, insolvency, insanity, or civil

interdiction of a partner. Statement 2: If an agent contracts in the name of the principal
exceeding his authority, the contract entered into shall be void.
Only statement 1 is true

As a general rule, a partner cannot ask for a formal accounting of the affairs of the
partnership during the existence and before it is dissolved, except:
All of the above

Three of the following are rights of a general partner in a limited partnership which are also
enjoyed by a limited partner. Which among these is the exception?
To have all the rights and be subject to all the restrictions and liabilities of a partner in a
partnership without limited partners.

A partnership is dissolved on the death of a

All of the above

Which of the following is not a property right of a partner?

His right to demand true and full information of all things affecting the partnersh

Ray Allen P., Arjay B., and Gabriel F. are partners in X and Company. Cesar F. represented
himself as a partner in X and Company to Patricia S. who, on the faith of such representation,
extended P1,000,000.00 credit to X and Company. Assuming only Ray Allen and Arjay
consented to such representation, who shall be liable to Patricia?
Only Ray Allen, Arjay, and Cesar are partners by estoppel and thus, are liable prorata to
Patricia

A partnership whereby the partners contribute to a common fund all the property actually
belonging to them at the time of the constitution of the partnership, with the intention of
dividing the same among themselves as well as the profits which they may acquire therewith
is called
Universal partnership of all present property

Statement 1: An industrial partner can be a limited partner. Statement 2: A limited partner

who takes part in the control of the business is not liable as a general partner if there is a
consent from all the partners to act as such.
Both statements are false

A partnership is deemed (/automatically) dissolved, except:

By the insanity of any partner

Which of the following contracts of partnership need not appear in a public instrument for
the purpose of creating legal personality?
Partnership having a capital of P3,000.00 or more

Questions 1 to 4 are based on the following facts: A, B, and C on December 1, 2020 agreed to
form a partnership. A promised that he will contribute cash amounting to P100,000.00 on
December 10, 2020; B will contribute merchandise agreed by them to be valued at P100,000.00
on December 15, 2020; and C will contribute cash amounting to P200,000.00 on December 30,
2020.
Partnership in this case is formed on
December 1, 2020

Based from the facts above, which of the statements below is correct?
There is already a partnership and A, B, and C can already be held liable as a partner by a third
person

If there is a profit of P10,000.00, the sharing of A, B, and C, would be

A, P2,500.00; B, P2,500.00; C, P5,000.00

Assuming that there is an agreement to distribute profit in this manner: A 40%; B 40%; C 20%
and the partnership sustained a loss of P10,000.00, which of the following is correct
None of the above
Suppose A is the managing partner and C entered into contract with a supplier to deliver
materials to be used by the business of the partnership, which of the statements below is
correct?
The partnership is bound to respect the contract entered into by C

A and B are partners, with A as the managing partner. D is indebted to A in the amount of
P10,000.00 and to the partnership in the amount of P5,000.00. Both debts are due and
demandable. D paid A P3,000.00. A issued a receipt in his own name. How should the amount
of P3,000.00 be applied?
P1,000.00 should be applied to the indebtedness of D to the partnership and P2,000.00 to the
indebtedness of D to A

A, B, C, and D are partners. Their contributions are as follows: A, P50,000.00; B, P30,000.0; C,

P20,000.00; and D, services. The partnership incurred obligations to third persons which the
firm was unable to pay. After exhausting the assets of the partnership, there is still unpaid
balance of P10,000.00. Who are liable for the payment of the unpaid balance of P10,000.00?
How much?
A, P2,500.00; B, P2,500.00; C, P2,500.00; D, P2,500.00

Statement 1: Articles of Universal Partnership entered into without Specification of its nature is
presumed to constitute only a universal partnership of all profits. Statement 2: Unless there is a
stipulation to the contrary, the partners shall contribute equal shares to the capital of the
partnership
Both statements are true.

Statement 1: The partner who has been appointed manager in the articles of partnership may
exercise all acts of administration despite the opposition of his partners and his power is
irrevocable without just or lawful cause. Statement 2: A partnership may be dissolved at any
time by any of the partners.
Both statements are true

Statement 1: Two or more persons may form a partnership for the exercise if a profession;
Statement 2: The surname of a limited partner should not appear in the partnership name
otherwise he is liable as a general partner.
Both statements are true

Statement 1: The receipt by a person of a share of the profits of a business does not of itself
establish a partnership; Statement 2: Persons who are prohibited from giving each other any
donation or advantage can enter into universal partnership
Both statements are false

Statement 1: A partnership may be established for charity; Statement 2: A partnership begins

from the time the partnership contract is registered with SEC
Both statements are false
A guarantee commission agent
All of the above

P appointed A as his agent to borrow P10,000.00 from C. A borrowed P10,000.00 but acted in
his name. Upon maturity, who is liable?
A only

If an agent contracts in the name of his principal, exceeding the scope of his authority, what
would be the status and effect of the contract?
Unenforceable

P appointed A as his agent orally to sell his parcel of land for P10,000.00. Five days after, A sold
to B the parcel of land for P8,000.00 by means of public instrument executed between A and B.
What is the effect and the status of sale between A and B?
The sale is void because the appointment of the agent is orally made

Statement 1: Any judgment creditor of a partner may charge, attach, and execute a partner's
interest in the partnership; Statement 2: A partner's right in a specific property may be assigned
to third persons
Only statement 1 is true

Which of the following statements is correct?

A husband and wife may enter into particular partnership

Statement 1: An inventory is necessary only if the value of the immovable contributed by the
partner exceeds P3,000.00; Statement 2: A partner's right in a specific property may be
assigned to third persons
Both statements are false

Assuming their business obtained profit of P10,000.00, how much must be given to Tomas?
Tomas should receive the amount which is just and equitable under the circumstances

Suppose after all the partnership property had been exhausted in payment of contractual
obligations of the partnership an amount of P30,000.00 is still unsatisfied, which of the
statements below is correct?
All of them, including Tomas, should give P10,000.00 each

Suppose unknown to Juan and Pedro, Tomas engaged himself in another business which is
different from the kind of business the partnership is engaged with, which of the following
statements is correct?
Tomas may be excluded from the firm by Juan and Pedro and may even by required to pay
damages
Suppose the business of the partnership is merchandising and Juan engaged himself in the
business of lending without the consent of the other partners, which of the following
statements is correct?
Juan did not commit any violation

Suppose Pedro conveyed his entire interest in the partnership to Mario, which of the following
statements is correct?
Mario has no right to inspect and copy the books of the partnership

Below are the property rights of Juan, Pedro, and Tomas, which one is the exception.
Right to a formal account of the partnership's affairs

One who takes active part in the business and known to the public as a partner in the business.
Ostensible partner

Whenever immovable property is contributed, an inventory of said property should be made,

signed by the parties and attached to the public instrument, otherwise the contract of
partnership is
Void
At what amount should the Inventory of Premium Cassette Players be shown in the
December 31, 2011 financial statements of Jackson Music Emporium?
1/1
P39,950
P221,000
P204,000
P56,950
 
Feedback
Premium Inventory, beg. at cost
Add: Premium Purchased at cost
= Premium Available for the Period
Less: Cost on Distributed Premium
= Premium Inventory, end

P 39,950 + (6,500 x P34) =P260,950

P260,950 - [(1,200,000/200) * 34] = 56,950

 
An asset has a nine-year useful life and is to be depreciate under the sum of years'
digits method. The annual depreciation expense would be the same as that under the
straight line method in the :
1/1
Third year
Ninth year
Seventh year
Fifth year
 
Feedback
Straight-line:
Depreciation ratio: 1 year / 9 years = 1/9

SYD: 9/2*(9+1)=45

Depreciation ratios per year:

1st: 9/45
2nd: 8/45
3rd: 7/45
4th: 6/45
5th: 5/45
6th: 4/45
7th: 3/45
8th: 2/45
9th: 1/45

The SYD depreciation ratio for 5th year is equal to SLM ratio:
5/ 45 or 1/9 in simplest form.

 
On January 1, 2013, Trece Patty Company issued P5,000,000, 8% serial bonds, to be
repaid in the amount of P1,000,000 each year. Interest is payable annually on
December 31. The bonds were issued to yield 10% a year. The-bond proceeds were
P4,757,000 based on the present value at January 1, 2013 of five annual payments.
The entity amortized the bond discount by the interest method. On December 31,
2013, what is the carrying amount of the bonds payable?
0/1
4,832,700
 
3,832,700
3,805,600
4,805,600

Correct answer
3,832,700
Feedback
Interest expense (10% x 4,757,000) --- 475,700
Interest paid (8% x 5,000,000) -----------(400,000)
=Amortization of discount------------------ 75,700

Bonds payable---------------------------------------------------5,000,000
Annual payment on December 31, 2013 ------------(1,000,000)
=Face value, December 31, 2013--------------------------4,000,000

Face Value — December 31, 2013------------------------------4,000,000

Unamortized Discount (243,000 - 75,700)---------------( 167,300)
=Carrying amount — December 31, 2013-------------------3,832,700
 
What amount of current liabilities should be reported on December 31, 2012,
statement of Financial Position?
0/1

P8,250,000
P5,750,000
P4,750,000
 
P3,750,000
Correct answer
P5,750,000
Feedback
150,000 + 3,600,000 + (4,000,000 x ¼) + 1,000,000= P5,750,000

PAS 1, paragraph 69, provides that an entity shall classify a liability as current when:
• The entity expects to settle the liability within the entity’s operating cycle.
• The entity holds the liability primarily for the purpose of trading.
• The liability is due to be settled within twelve months after the reporting period.
• The entity doesn’t have an unconditional right to defer settlement of the liability for at
least twelve months after the reporting period.

Accordingly, in this problem, the current liability shall include:

Items a, b, (current portion of) d and e
Item c will not be classified as current even after the breach because of the waiver
before the reporting period.
 
Factor Company's cash-generating-unit has been assessed for impairment and it has
been determined that the unit has incurred an impairment loss of P240,000. The cash-
generating unit has not recorded any amount of goodwill. The carrying amounts of the
assets were as follows:-----Building 6,000,000-----Equipment 2,000,000------Land
3,500,000-----Fittings 2,500,000. ------If the fair value less cost to sell the building is
P5,960,000 what amount of impairment loss should be allocated to the equipment?
0/1
P50,000
P87,500
 
P34.286
P62,500

Correct answer
P50,000
Feedback
Total impairment Loss P240,000
Impairment loss (bldg.): P 6,000,000- 5,960,000
= Impairment Loss assigned to the other assets P200,000
Impairment Loss assigned to the other assets P200,000
X ratio allocation for equipment 25%**
= P 50,000

** ratio allocation for equipment = CA of EQPT/ Total remaining CA

= 2M/ (2M+3.5M+2.5M)
=25%

 
Caldis Corporation purchased land for P6,000,000. The company expected to extract
1 million tons of mine from this land over the next 20 years at which time, residual
value shall be zero. During the first 2 years of the mine's operations, 30,000 tons were
mined each year and sold for P80 per ton. The estimate of the total remaining lifetime
capacity of the mine was raised to 1,200,000 tons at the start of the third year and the
residual value was estimated to be P480,000. During the third year, 50,000 tons were
mined and sold for P85 per ton. How much would be the depletion for the third year?
0/1
P227,500
P225,000
 
P235,000
P215,000

Correct answer
P215,000
Feedback
*Depletion (1st & 2nd years)
Cost / Original estimated life in units x Total Units Extracted=Depletion (1st and 2nd
year)
P6,000,000/ 1,000,000 x 60,000= P 360,000*

Cost - Depletion (1st & 2nd years) =Book value, 3rd year, beg
P6,000,000 - 360,000* = P5,640,000

Book value 3rd year, beg - Residual value =Depletable book value
P5,640,000 - 480,000 = P5,160,000

Depletable book value Divided by new life in tons =Depletion rate per unit
P5,160,000/ 1,200,000 = P 4.30

Depletion rate per unit Multiplied by Units Extracted =Depletion, 3rd year
50,000 x P 4.30 = P 215,000
 
What should Magic Lamp report as total contributed capital in its December 31, 2014
balance sheet?
0/1

P1,330,000
P1,294,000
 
P1,262,000
P1,040,000

Correct answer
P1,330,000
Feedback
Ordinary share outstanding
P1,200,000
Preference share outstanding (6,000 shares x P 16)
96,000
Subscribed preference share (2,000 shares x P 17)
34,000

Total contributed capital = P1,330,000

 
On December 31, 2021, Manoy Company declared its investment in equity security
designated as investment to other comprehensive income as property dividend. At the
time of declaration, the investment was recorded at its current value of 600,000, the
related unrealized gain of 100,000 has been reported in the current year OCI. By what
amount should Manoy charge its Accumulated Profits and Losses as a result of the
dividend declaration?
0/1
600,000
100,000
500,000
700,000
 

Correct answer
600,000
 
The amount of capitalizable interest in 2012 is
0/1

2,534,761
2,739,517
2,500,000
1,200,000
 

Correct answer
2,500,000
Feedback
General Borrowings:
Average expenditure less Amount related to Specific borrowing = Amount related to
general borrowings
(304,742,000/12) - 10,000,000 = 15,395,167

Amount related to general borrowings x Capitalization rate = Capitalizable General

Borrowing cost
15,395,167 x 8.67%* = 1,334,761

*Capitalization rate: Total Interest Cost/Total Principal (1,300,000/P15,000,000) =

8.67%

Capitalizable General Borrowing cost + Capitalizable Specific borrowing Cost = Total

Capitalizable Cost
1,334,761 x (10,000,000 x 12%) = P2,534,761

Actual Borrowing Cost Incurred

12% note (10,000,000 x 12%) or P1,200,000
10% note (P5,000,000 x 10%) or 500,000
8% note (P10,000,000 x 8%) or 800,000
Total = P2,500.000

Compare: Total Capitalizable Cost vs. Actual Borrowing Cost Incurred

P2,534,761 > P2,500.000

The amount that should be capitalized in 2012 should be the actual borrowing cost
ofP2,500,000. Under PAS 23, the amount of borrowing costs capitalized should NOT
EXCEED the actual borrowing costs incurred during the period.

 
An intangible asset costs P300,000 on January 1, 2011. On January 1, 2012, the
asset was evaluated to determine if it was impaired. As of January 1, 2012, the asset
was expected to generate future cash flows of P25,000 per year (at the end of each
year). The appropriate discount rate is 5%. What total amount -should be charged
against income in 2012, assuming that the asset had a total useful life of 10 years
from date of acquisition?
0/1
P30,000
P122,304
 
P92,304
P112,048

Correct answer
P112,048
Feedback
Amortization expense-2012 (P 177,696**/9) -------P 19,744
Add: Impairment loss (Schedule)-----------------------------92,304*
Total amount to be charged against income in 2012= P112,048

EXPLANATION:
For intangible assets, the presumption is that in the absence of strong evidence to the
contrary, the residual value is zero ang the straight-line method should be used -

Book value: (P300,000 - P30,000) ----------------270,000

Estimated fair value:
Less: Value in use (P25,000 x 7.10782)-------177,696**
Impairment loss ------------------------------------------P92,304*

Impairment of Intangible Assets Other Than Goodwill:

A. Subject to amortization
B. Not subject to amortization

If the recoverable amount of an intangible asset is less than its carrying amount, the
carrying amount of the intangible asset should be reduced to its recoverable amount;
the reduction is an impairment loss.

If there is an impairment loss on a non-revalued intangible asset, it is recognized in

profit or loss.

If there is an impairment loss on a revalued intangible asset, the carrying value based
on -the revalued amount less the fair value of the intangible less the existing revaluation
surplus is the measure of impairment loss.
 
The following are forms of financial instrument, except:
1/1
coins
callable preference share
income tax payable
 
trade accounts
Feedback
ITP is noncontractual
 
Which of the following research and development costs should be capitalized and
amortized over current and future periods?
1/1
Labor and material costs incurred in building a prototype model.
Cost of testing equipment that will also be used in another separate research and
development project scheduled to begin next year.
 
Administrative salaries allocated to research and development.
Research findings purchased from another entity to aid a particular research project
currently in process.
Feedback
stipulation of AICPA Financial Accounting Standards Board
 
BamboomBayan Company owned a building on January 1, 2014 with historical cost of
P40,000,000. The property is depreciated over 40 years on a straight-line basis with
no residual value. The entity adopted a policy of revaluation of property. The building
has so far been revalued twice at value as follows: ------January 1, 2015 : 46,800,000;
and January 1, 2017 : 55,500,000----What is the increase in revaluation surplus to be
included in the component of other comprehensive income on January 1, 2017?
1/1
11,100,000
 
8,700,000
15,500,000
9,900,000
Feedback
Fair value — January 1, 2015
P46,800,000
Less: Accumulated depreciation — 12/31/2016:
(46,800,000/39) x 2 years
=Carrying amount — January 1, 2017
P44,400,000

Fair value — January 1, 2017

P55,500,000
less: Carrying amount January 1, 2017
44,400,000
=Increase in revaluation surplus — January 1, 2017
P11,100,000

 
On January 1, 2014, the Accumulated Depreciation—Machinery account of Siomai-
yan Company showed a balance of P370,000. At the end of 2014, after the adjusting
entries were posted, it showed a balance of P395,000. During 2014, one of the
machines which cost P125,000 was sold for P60,500 cash. This resulted in a loss of
P3,000.Assuming that no other assets were disposed of during the year, how much
was depreciation expense for 2014?
0/1
P93,500
P86,500
P60,000
P25,000
 

Correct answer
P86,500
Feedback
Acc. Dep. 12/ 31/14
P395,000
Add: Acc. Dep. On sold asset:
Cost of sold asset- (Proceeds + Loss on Sale)
P125,000 - (P60,500+3,000)

Total----------------------------------- P456,500
Less: Acc. Dep. 1/1/14------370,000
=Depreciation during the year =P 86,500
 
Which of the following entries was made to record the 2011 estimated warranty
expense?
1/1
D
 
C
B
A
Feedback
3,200,000 * 2% = 64,000

Beg. balance 10,000 (Dr)

Less: Warranty Expense 64,000
= End. Balance 54,000 (Cr)

ACCA107 - Strategic Cost Management

3 of 14 points
Standard, ABC, Performance Measures, Balance Scorecard, JIT and Backflush
 
Andersen Corporation has a target return of 15%. If a prospective investment has an
estimated return on investment of 20%, and a residual income of $10,000, what is the
estimated cost of the investment?
0/1
$200,000
$ 66,667
The answer can't be determined from this information.
$ 50,000
 

Correct answer
$200,000
Feedback
percentage of residual income= 0.20 - 0.15 = 0.05

RI: 5%
Investment: 100%

RI / 5%= Investment
$10,000 / 0.05 = $200,000
 
Refer to McAllen Company. What is the process productivity in the Disk Production
Department?
0/1

667
625
833
588
 

Correct answer
833
Feedback
250k/300=833
 
What is the company's Economic Value Added (EVA)?
0/1

P422,000
P240,000
 
P180,000
P222,000

Correct answer
P222,000
Feedback
EVA= After Tax Operating Income – (Invested Capital x Weighted Average Cost of
Capital WACC )

After Tax Operating Income: [800k x (1 - 0.30)]= P600,000

Invested Capital: (800k +3,200k-400k) = P3,600,000
WACC: 10.5% see the link for WACC computation:

EVA = 600,000 - (3,600,000 x 10.50%) = P222,222

WACC computation and EVA discussion

 
Refer to Hazel Company. Using ABC, the cost per unit of coats is approximately:
0/1

$2.40
$3.90
 
$ 6.60
$10.59

Correct answer
$ 6.60
Feedback

ABC

 
The total debits to the direct materials account for the purchase of Item 1 should be:
0/1
$75,000
$78,000
$58,500
No entry
 

Correct answer
$78,000
Feedback
To record purchase:
AQ x SP = Dr. Direct/Raw Material
100,000 x $.78 = $78,000

See: Slide 25 of the PPT accessible thru the link below

MatVar

 
In the pharmaceutical or food industries, quality control inspections would most likely
be viewed as
0/1
non-value-added activities.
business-value-added activities.
 
value-added-activities.
process-efficiency activities.

Correct answer
value-added-activities.
Feedback
given the nature of operation, it is VAA
 
Smithson Company produces two products (A and B). Direct material and labor costs
for Product A total $35 (which reflects 4 direct labor hours); direct material and labor
costs for Product B total $22 (which reflects 1.5 direct labor hours). Three overhead
functions are needed for each product. Product A uses 2 hours of Function 1 at $10
per hour, 1 hour of Function 2 at $7 per hour, and 6 hours of Function 3 at $18 per
hour. Product B uses 1, 8, and 1 hours of Functions 1, 2, and 3, respectively.
Smithson produces 800 units of A and 8,000 units of B each period. If total overhead
is assigned to A and B on the basis of units produced, Product A will have an
overhead cost per unit of:
0/1
$ 88.64.
$123.64.
$135.00.
 
None of the responses are correct.

Correct answer
$ 88.64.
Feedback

 
ABC2

 
Refer to McAllen Company. What is the process quality yield in the Disk Production
Department?
1/1

75%
44%
80%
 
125%
Feedback
200k/250k=80%
 
Cheeta Company has materials cost in the June 1 Raw and In Process of $10,000
(excluding $600 of conversion cost), materials received during June of $205,000 and
materials cost in the June 30 Raw and In Process of $12,500 (no conversion cost).
The amount to be backflushed from Raw and In Process to Finished Goods at the end
of June would be:
1/1
$207,500
$202,500
 
$217,500
none of the given options
Feedback
10k+205k-12.5k
 
What type of direct material variances for price and usage will arise if the actual
number of pounds of materials used was less than standard pounds allowed but actual
cost exceeds standard cost?
0/1
Usage: Favorable; ---- Price: Unfavorable
Usage: Favorable; ---- Price: Favorable
Usage: Unfavorable; ---- Price: Unfavorable
Usage: Unfavorable; ---- Price: Favorable
 

Correct answer
Usage: Favorable; ---- Price: Unfavorable
Feedback
Higher actual price or usage than standard value/s will bring unfavorable variances
 
On a balanced scorecard, which of the following would be most appropriate to
measure customer service?
0/1
Corporate financial profits
Decrease in reworked products
Rapid time-to-market of new products
 
On-time delivery

Correct answer
On-time delivery
Feedback
On-time delivery: Customer Service

Rapid time-to-market of new products: Innovation

Corporate financial profits: Financial Performance
Decrease in reworked products: Production Process Integrity

Source: Raiborn, Kinney

 
Which of the following inventories would a company try to reduce and/or eliminate
under a just-in-time system?
0/1
Raw Materials, Inv.: Yes; ---- WIP, Inv.: Yes; ---- Finished Goods, Inv. :Yes
Raw Materials, Inv.: No; ---- WIP, Inv.: Yes; ---- Finished Goods, Inv. :No
Raw Materials, Inv.: Yes; ---- WIP, Inv.: No; ---- Finished Goods, Inv. :Yes
 
Raw Materials, Inv.: Yes; ---- WIP, Inv.: No; ---- Finished Goods, Inv. :No

Correct answer
Raw Materials, Inv.: Yes; ---- WIP, Inv.: Yes; ---- Finished Goods, Inv. :Yes
Feedback
JIT wants to reduce all kinds of inventory,

Source: Hilton
 
What is the direct materials price variance of Abe Hero? Information on Abe Hero's
direct material costs for May is as follows:
0/1

$2,800 favorable
 
$2,800 unfavorable
$6,000 unfavorable
$6,000 favorable

Correct answer
$6,000 favorable
Feedback
SP (AQ-SQ) = MEV
x (30,000 - 29,000) = $3,000
1,000 x = $3,000
x = $3

MPV = (AP-SP) AQ
y = $2.80 - $3.00 (30,000)
y = ($6,000) favorable
 
Empire Division of New York Delights, is evaluated based on residual income
generated. In the most recent year, the Empire Division generated a residual income
of $2,000,000 and net income of $5,000,000. The target rate of return for all divisions
of New York Delights is 20%. What was the return on investment for the Empire
Division?
1/1
20%
13%
40%
33%
 
Feedback
(Net Income) - (Target Rate x Total Assets) = Residual Income
($5,000,000) - (0.20 x Total Assets) = $2,000,000
(0.20 x Total Assets) = $3,000,000
Total Assets = $15,000,000
ROI = (5,000,000/15,000,000)
ROI = 33%

ACCA108 - Intermediate Accounting 3

4 of 8 points
Leases, Employee Benefits, Taxes, Notes, Non-current Asset held for Sale, &
Discontinued Operation
 
On January 1, 2010 Luzon Company, acting as a lessor, leased an equipment for ten
years at an annual rental of P1,200,000, payable by Visayas, the lessee, at the
beginning of each year. The equipment had a cost of P8,400,000 with an estimated
life of 12 years and no residual value. Luzon uses the straight line depreciation. The
implicit rate is 9%.What amount of interest income should be reported in 2010 by
Luzon if the lease was accounted for as a direct financing lease?
1/1
P500,000
P648,000
 
P360,000
P756,000
 
Lala Company accounts for noncurrent assets using the cost model. On October 1,
2010, Lala classified a noncurrent asset held for sale. At that date, the asset’s carrying
amount was P1,600,000, its fair value was estimated at P1,100,000 and the cost to
sell at P100,000. On December 15, 2010, the asset was sold for net proceeds of
P925,000.What amount should be included as an impairment loss in Lala’s statement
of comprehensive income for the year ended December 31 ,2010?
0/1
P500,000
 
P600,000
P675,000
P0

Correct answer
P600,000
 
Best Company determined that it has an obligation relating to employees’ rights to
receive compensation for future absences attributed to employees’ services already
rendered. The obligation relates to rights that vest, and payment of the compensation
is probable. The amount of Best’s obligations as of December 31, 2010 are
reasonably estimated as follows: Vacation pay: P1,100,000 --------Sick pay:
900,000.------ In its December 31, 2010 statement of financial position, what amount
should Best report as its liability for compensated absences?
1/1
1,100,000
2,000,000
 
900,000
0
 
Big company committed to sell its comic book division (a component of the business)
on September 1, 2010. The carrying amount of the division was P2,000,000 and the
fair value was P1,750,000. The disposal date is expected to be June 1, 2011. The
division reported an operating loss of P100,000 for the year ended December 31,
2010. Ignoring income tax, what amount should be reported as loss from discontinued
operation in 2010?
1/1
P250,000
P100,000
P350,000
 
P0
 
Rose Company accounts for noncurrent assets using the cost model. On October 30
2010, Rose classified a noncurrent asset as held for sale. At that date, the asset’s
carrying amount was P750,000,its fair value was estimated at P550,000 and the cost
to sell at P75,000. On November 20, 2010, the asset was sold for net proceeds of
P400,000. What amount should be included as loss on disposal in Rose statement of
comprehensive income for the year ended December 31, 2010?
0/1
75,000
P350,000
P275,000
 
0

Correct answer
75,000
 
On June 30, 2010, Lovely Company prepaid a P1,000,000 premium on an annual
insurance policy. The premium payment was a tax deductible expense in Lovely’s
2010 cash basis tax return. The accrual basis income statement will report a P500,000
insurance expense in 2010 and 2011. The income tax rate is 30%. In Lovely’s
December 31, 2010 statement of financial position, what amount related to the
insurance should be reported as deferred tax liability?
0/1
150,000
300,000
 
200,000
0

Correct answer
150,000
 
Queen Company adopted a defined benefit pension plan on January 1, 2010. Queen
amortizes the past service cost over 16 years and funds past service cost by making
equal payments to the fund trustee at the end of each of the first ten years.The current
service cost is fully funded at the end of each year. The following data are available for
the current year: -----Current service cost P220,000----- Past service cost: Amortized -
83,400 and ; Funded- 114,400----Queen’s prepaid pension cost at December 31, 2010
is
1/1
P114,400
P 83,400
P31,000
 
0
 
On January 1, 2009, Hilander Company purchased a machine for P1,400,000. This
machine has a 5-year useful life, a residual value of P200,000, and is depreciated
using the straight line method for financial statement purposes. For tax purposes,
depreciation expense was P500,000 for 2009 and P400,000 for 2010, Hilander’s 2009
income before tax and depreciation expense was P2,000,000 and its tax rate was
30%.If Hilander has made no estimated tax payments during 2010, what amount of
current income tax liability would Hilander report in its December 31, 2010 statement
of financial position?
0/1
P450,000
P480,000
P330,000
 
P600,000

Correct answer
P480,000

ACCA109 - GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT, AND

INTERNAL CONTROL
5 of 9 points
Corporate Governance, Business Ethics, Risk Management, & Internal Control
 
The rights of shareholders can be effectively upheld through the following measures
except
1/1
By requiring the external auditor to attend the annual general meeting and to answer
questions about the audit.
By designing and disclosing a communications strategy to promote affective
communication with shareholders.
By encouraging active participation at general meetings.
By establishing an audit committee
 
 
Which of the following creates an opportunity for fraud to be committed in an
organization?
1/1
Management is aggressive in its application of accounting rules
Commitments tied to debt covenants
Poor internal control
 
Management demands financial success
 
The following are examples of dishonest acts of an employee toward his employer
except
0/1
Doing personal errands during office hours.
 
Bringing home office supplies for personal use.
Overstating business trip expenses by submitting false receipts.
Working overtime upon instruction of his supervisor.

Correct answer
Working overtime upon instruction of his supervisor.
 
Examples of direct misrepresentation about the product include the following except
1/1
Mislabeling
False advertising
Caveat emptor
 
Deceptive packaging
 
Top management's commitment in the "Unified Code of Conduct for Business"
included the following, except
0/1
To support strategy integrity practices and efforts and allocate sufficient resources for
their implementation.
To communicate within the company and the general public the company's position
against bribery, corruption and unethical business practice.
To institute training programs or business ethics covering all levels of the
organization.
To lead by example in conducting business with integrity.
 

Correct answer
To institute training programs or business ethics covering all levels of the
organization.
 
The risk that the real rate of return will be lesser than the nominal or stated rate of
return due to inflation is referred to as
1/1
Default risk
Business risk
Purchasing power risk
 
Liquidity risk
 
Audit committee activities and responsibilities include which of the following?
0/1
Selecting the external audit firm.
 
Approving corporate strategy.
Reviewing management performance and determining Compensation.
None of the above.

Correct answer
None of the above.
 
Which of the following is an inherent risk relating to inventory?
1/1
Inventory is easily transportable.
Inventory may become obsolete because of technological advances even though
there are no visible signs of wear
All of the other options.
 
Inventory is often returned by customers, so care must be taken to separately identify
returned merchandise, check it for quality, and record it at net realizable value.
 
For control purposes, the quantities of materials ordered may be omitted from the
copy of the purchase order that is
0/1
Retained in the purchasing department's files
 
Forwarded to the receiving department
Forwarded to the accounting department
Returned to the requisioner

Correct answer
Forwarded to the receiving department

ACCA110 - Acc Financial Management

5 of 10 points
Overview, Financial Statement Analysis, Capital Budgeting, Time Value of Money,
WC Mngt., Cost of Capital, Hybrid Financing
 
Terry Austin is 30 years old and is saving for her retirement. She is planning on
making 36 contributions to her retirement account at the beginning of each of the next
36 years. The first contribution will be made today (t = 0) and the final contribution will
be made 35 years from today (t = 35). The retirement account will earn a return of 10
percent a year. If each contribution she makes is $3,000, how much will be in the
retirement account 35 years from now (t = 35)?
0/1
$894,380
$813,073
 
$897,380
$987,118
Correct answer
$897,380
Feedback
FV of annuity in advance of 10% for 35 periods + last payment

= $894,380.42 +$3,000
=$897,380.42
 
The primary goal of a publicly-owned firm interested in serving its stockholders should
be to
1/1
Maximize expected net income.
Maximize the stock price per share.
 
Minimize the chances of losses.
Maximize expected EPS.
Feedback
Source: Brigham
 
The Seattle Corporation has been presented with an investment opportunity that will
yield cash flows of $30,000 per year in Years 1 through 4,$35,000 per year in Years 5
through 9, and $40,000 in Year 10. This investment will cost the firm $150,000 today,
and the firm’s cost of capital is 10 percent. Assume cash flows occur evenly during the
year,1/365th each day. What is the payback period for this investment?
1/1
4.86 years
 
6.12 years
5.23 years
4.00 years
Feedback
Using the even cash flow distribution assumption, the project will
completely recover the initial investment after $30/$35 = 0.86 of Year 5:
Payback = 4 + ($35/$30)
= 4.86 years
 
Cross Collectibles currently fills mail orders from all over the U.S. and receipts come in
to headquarters in Little Rock, Arkansas. The firm’s average accounts receivable
(A/R) is $2.5 million and is financed by a bank loan with 11 percent annual interest.
Cross is considering a regional lockbox system to speed up collections that it believes
will reduce A/R by20 percent. The annual cost of the system is $15,000. What is the
estimated net annual savings to the firm from implementing the lockbox system?
1/1
. $ 30,000
$ 40,000
 
$ 55,000
$ 60,000
Feedback
Calculate the net reduction in A/R:
Current A/R = $2,500,000. New A/R with 20% reduction:
$2,500,000 - 0.20($2,500,000) = $2,000,000.

Net reduction in A/R = $2,500,000- $2,000,000 = $500,000.

Calculate the interest savings and net savings:

Interest savings = $500,000(0.11) = $55,000.

Net savings = Interest savings - Annual lockbox cost

= $55,000 - $15,000 = $40,000.
 
A 10-year convertible bond has a face value of $1,000 and pays an annual coupon of
$50. The bond’s conversion price is $40. The issuing company’s stock currently trades
at $30 a share. The company can issue straight(non-convertible) debt with an 8
percent yield. Which of the following statements is most correct?
0/1
The bond’s straight-debt value is $750.
The convertible bond should sell for less than $750.
 
The bond’s conversion value is currently $750.
The bond’s straight-debt value is $1,000.

Correct answer
The bond’s conversion value is currently $750.
Feedback
Statement b is correct; the other statements are incorrect. The bond’s conversion value
is $750 = (The conversion ratio multiplied by the current stock price) or (1000/40 * 30).

The bond’s straight-debt value is $798.70. (N = 10; I = 8; PMT =

50; FV = 1,000), so both statements c and d are incorrect. Clearly, the
bond should also sell for more than its straight-debt value, so statement e is incorrect.
 
The company’s current assets consist of cash, inventories, and accounts receivable.
How much cash does Taft have on its balance sheet?
0/1

-$ 8,333
 
$ 68,493
$125,000
$200,000

Correct answer
$ 68,493
Feedback
First, find the amount of current assets:
Current ratio = Current assets/Current liabilities
Current assets = (Current liabilities)(Current ratio)
= $375,000(1.2) = $450,000.

Next, find the accounts receivables:

DSO = AR/(Sales/365)
AR = DSO(Sales)(1/365)
= (40)($1,200,000)(1/365) = $131,506.85.

Next, find the inventories:

Inventory turnover = Sales/Inventory
Inventory = Sales/Inventory turnover
= $1,200,000/4.8 = $250,000.

Finally, find the amount of cash:

Cash = Current assets - AR - Inventory
= $450,000 - $131,506.85 - $250,000 = $68,493.15 or $68,493.
 
Beckham Broadcasting Company (BBC) has operating income (EBIT) of $2,500,000.
The company’s depreciation expense is $500,000 and it has no amortization expense.
The company is 100 percent equity financed (that is, its interest expense is zero). The
company has a 40 percent tax rate, and its net investment in operating capital is
$1,000,000. What is BBC’s net operating profit after taxes?
1/1
$1,500,000
 
$1,250,000
$1,200,000
$1,550,000
Feedback
NOPAT = EBIT(1 – T) = $2,500,000(1 – 0.40) = $1,500,000.
 
If Nico Corporation has annual purchases of $300,000 and accounts payable of
$30,000, then average purchases per day are _________ and the average payment
period is _________.
0/1
36.0; 833.3
36.5; 821.9
821.9; 36.5
833.3; 36.0
 

Correct answer
821.9; 36.5
Feedback
a: 300k/365

b: 30,000 / (300k/365 )
 
All else equal, which of the following actions will increase the amount of cash on a
company’s balance sheet?
1/1
The company issues new common stock.
 
The company repurchases common stock.
The company pays a dividend.
None of these.
Feedback
The correct answer is statement a. Issuing new stock means that the
company sells stock to shareholders and receives cash in return;
therefore, statement a is correct.
 
Allison Engines Corporation has established a target capital structure of40 percent
debt and 60 percent common equity. The current market price of the firm’s stock is P0
= $28; its last dividend was D0 = $2.20, and its expected dividend growth rate is 6
percent. What will Allison’s marginal cost of retained earnings, ks, be?
0/1
15.8%
 
13.9%
7.9%
14.3%

Correct answer
14.3%
Feedback
Use the dividend growth model to calculate ks:

ks = [Dg (1+g)/P]+g = [$2.20(1.06)/$28] + 0.06

= 0.0833 + 0.06 = 0.1433 or 14.3%.

ACCA111 - Accounting Information System

4 of 8 points
Introduction, Enterprise System, SAP on Cloud Platform, Interface, and
Procurement
 
S1: Information is unprocessed data ----- S2: Enterprise System is a graphical
representation of a system that depicts the systems components; the data flows
among the components; and the sources, destinations, and storage of data.
1/1
False; False
 
True; False
False ;True
True; True
Feedback
Information is processed data;

S2 pertains to Data Flow Diagram

 
In standard flowcharting symbol, parallelogram (the symbol presented below)
represents:
0/1

Input/ Output
Document
 
Manual Operation
Display / Punched Card

Correct answer
Input/ Output
 
S1: SAP Business One documents may generate journal entries ------- S2: Only
manual entries can be processed by SAP Business One.
1/1
True; True
True; False
 
False; True
False; False
Feedback
Mr. Mitra's Final Exam
 
Which of the following is not a marketing document?
1/1
Purchase Order
Delivery
A/R Invoice
Incoming Payments
 
Feedback
Mr. Mitra's Final Exam
 
The ideal way to describe Cloud Computing would be to term it as what
1/1
Software as a Service
Application as a Service
Platform as a Service
Everything as a Service
 
Feedback
Mr. Imperial's Exam
 
On May 1, 2021 The business has the following: 3,000 units In-Stock with Zero (0)
units of Committed and Zero (0) units of Ordered. On May 15, 2021, the business
ordered 2,900 units from the supplier. The ordered items arrived on May 30, 2021.
When are we to prepare GRPO?
0/1
May 1, 2021
May 15, 2021
 
May 30, 2021
April 30, 2021

Correct answer
May 30, 2021
Feedback
Mr. Mitra's Final Exam
 
All of the following statements are CORRECT, except:
0/1
If a delivery note is created based on a sales order for a customer, the warehouse
stock is increased by the delivery quantity when the delivery note is added.
If an incoming invoice is entered in purchasing, the warehouse stock increases by the
delivery quantity when the incoming invoice is added.
A goods receipt creates a journal entry that posts the value of the received goods on
the debit side of the stock account and the credit side of the inventory offset
The Goods Receipt can be used if there is an increase in the quantity of inventory
outside the regular purchase and sales process.
 

Correct answer
If a delivery note is created based on a sales order for a customer, the warehouse
stock is increased by the delivery quantity when the delivery note is added.
Feedback
Mr. Imperial's Exam
 
S1: The repository of Journal Entries in SAP Business One is called General Journal.
------ S2: Inventories not related to purchase or sales such as suppliers freebies are
processed under Inventory Module
0/1
True; True
 
False;False
True; False
False; True

Correct answer
False; True
Feedback
Mr. Mitra's Final Exam

ACCL102 - BUSINESS LAWS AND REGULATIONS

4 of 8 points
Sales, Negotiable Instruments, Credit Transactions
 
Can Mr. B. Baje compel Mr. A. Abad to accept the P300,000 and make him sign and
execute a Deed of Sale?
1/1

No, Mr.B. Baje did not accept the offer of Mr. A. Abad
 
Yes, Mr. A. Abad is already stopped by his signing the letter and offer.
Yes, there was actual meeting of the minds.
Yes, the contract is perfected
 
The following are common to pledge, chattel mortgage and real mortgage, except:
1/1
These contracts must be in writing and registered in order to be binding against third
persons
 
The pledgor/mortgagor must be the absolute owner of the thing pledged or
mortgaged
These contracts are constituted to secure the performance of a principal obligation
There can be no valid pledge, chattel, or real mortgage without a valid obligation
Feedback
Pledge must be in a public instrument showing a description of the thing pledged and
the date of the pledge to bind the third persons.

Real mortgage: must be registered

Chattel mortgage: must be registered and accompanied by an affidavit of good faith
 
X issued a check in favor of his creditor, Y. It reads: “Pay to Y the amount of Seven
Thousand Hundred Pesos (Php700,000.00). Signed, X”. What amount should be
construed as true in such a case?
1/1
Php700,000.00.
 
Php700,100.00.
Php700.00.
Php7,000.00.
Feedback
Sec. 17
When words and figure has discrepancy: the sum denoted by words is preferred

However, if words are ambiguous or uncertain, reference may be had to the figures to
the fix amount
 
Quasi-traditio is equivalent to
0/1
Execution of a public instrument
Traditio longa manu
Traditio constitutum possessorium
Traditio clavium
 

Correct answer
Execution of a public instrument
Feedback
Execution of public instrument only gives rise to a prima facie presumption of delivery.
Hence, it shall be equivalent to delivery of thing sold, IF from the deed the contrary
does not appear or cannot be clearly inferred (1498)

Note: Traditio clavium is snother name for traditio simbolica

 
X, at Y’s request, executed a Real Estate Mortgage (REM) on his (X’s) land to secure
Y's loan from Z. Z successfully foreclosed the REM when Y defaulted on the loan but
half of Y's obligation remained unpaid. May Z sue X to enforce his right to the
deficiency?
0/1
Yes, but solidarily with Y.
Yes, since X’s is deemed to warrant that his land would cover the whole obligation.
No, since it is the buyer at the auction sale who should answer for the deficiency.
 
No, because X is not Z’s debtor.
Correct answer
No, because X is not Z’s debtor.
Feedback
In case of deficiency in the foreclosure sale, the creditor may recover the same from the
PRINCIPAL DEBTOR by filing a court action
 
On March 12, 2021, S sold under a contract to sell a specific car to B without delivery.
On March 15, 2021, S sold again the said car to D under a contract of sale with
delivery but without payment. On March 17, 2021, B fully paid the price to S. Which is
correct?
0/1
The rule on double sale will apply in this case
 
The rule on double sale will not apply in this case
B has better right over the car because he is payed first
B has better right over the car than D because he has earlier title

Correct answer
The rule on double sale will not apply in this case
Feedback
In contract of sale, the title passes to the vendee upon delivery; in a contract to sell,
ownership is reserved and is not to pass to the vendee until full payment of the
purchase price.

Delivery to D happened before B was able to pay the price.

Hence, this is not a case where double sale is applicable.
 
M issued a promissory note to payable to the order of P. P indorsed it specially to A.
Without the knowledge of A, X took the note and forged A’s signature and then
delivered it to B, who specially indorsed it to C, C to D, D to E, and E to H, a holder in
due course. Against whom can H demand payment of the note?
1/1
A because he is negligent in keeping the promissory note
Against all parties because H is a holder in due course
B, C, D and E because their signatures appear after the forgery
 
M and P because their signatures are genuine and had not been forged
Feedback
A cannot be held liable because forgery is a real defense.

On the other hand, H can hold B, C, D, and E liable on their warranty "that the
instrument is genuine and in all respects what it purports to be"
 
In sale of a land with a non-apparent servitude, a hidden defect, the buyer can rescind
the sale within period of time?
0/1
the buyer cannot rescind and can only ask for damages, within a period of one year
from the discovery of the easement
1 year from the execution of the contract of sale
3 days from the discovery of the hidden defect
40 days from the date of delivery
 

Correct answer
1 year from the execution of the contract of sale
Feedback
Art. 1560

ACCL103 - REGULATORY FRAMEWORK AND LEGAL ISSUES IN BUSINESS

5 of 8 points
Partnership, Corporation, Cooperative, PDIC, Bank Secrecy, and AMLA
 
One of the distinction between a partnership and a corporation is that a partnership:
1/1
may be dissolved only with the consent of the State
has the right of succession
is managed by a board of directors
is characterized by the principle of delectus personae
 
Feedback
Under the doctrine of delectus personae (or personarum in plural form) a person is free
to choose those whom he wants to be associated with in partnership. This is true with
partnership as its formation cannot be imposed upon a person because a partnership is
a fiduciary relationship.
 
S1: The deposits may be examined, inquired, or looked into by any person,
government official, bureau or office upon written or oral permission of the depositor.
----- S2: Law on secrecy of bank deposits covers savings and checking accounts,
money market placement and trust funds.
1/1
True; True
False; False
 
False; True
True; False
Feedback
S1: Law provides: only Written

S2: The money market placement and

the trust fund are not covered.
 
Vincent and James entered into a universal partnership of profits. At the time of
execution of the articles of partnership, Vincent had a two-door apartment which he
inherited from his father 3 years earlier. James, on the other hand, had a fleet of taxis
which he purchased 2 years before. In the first year of the partnership, Vincent earned
P500,000.00 as a radio talent, while he James won P1,000,000.00 in the lotto. During
the same period, rentals of P120,000.00 were collected from the apartment, while fare
revenues of P200,000.00 were realized from the operation of the fleet of taxis. Which
of the following belongs to the partnership?
1/1
Salary of P500,000.00
 
Fleet of taxis
Two-door apartment
Lotto winnings of P1,000,000.00
Feedback
Art. 1780 provides that in UP of profits, profits and fruits obtained by the partners during
the partnership shall belong to the partnership: except those acquired by chance or
lucrative title.
 
Based on the foregoing, all are statement are FALSE, find the EXCEPTION. The
following partnership contracts were presented to you for evaluation:
0/1

Each partnership has a seperate juridical personality.

I and II have separate juridical personality.
II and III have separate juridical personality.
 
None of the partnership has a separate juridical personality.

Correct answer
Each partnership has a seperate juridical personality.
Feedback
partnership is consensual

1: still valid even not in public instrument nor registered with SEC (Arts. 1768, 1772)
2: still valid even not registered with SEC (Arts. 1768, 1772)
3: partnership will be considered a general partnership (Art. 1844)
 
S1: Cooperatives registered under the Philippine Cooperative Code shall be subject to
a quarterly financial, performance, and social audit. ------ S2: Performance audit refers
to the procedure where the cooperative assesses its social impact and ethical
performance vis-a-vis its stated vision, goals and social mission.
0/1
True; True
 
False; True
True; False
False; False

Correct answer
False; False
Feedback
Art. 80 of Coop Code only provides for ANNUAL audits

S2 refers to Social Audit

 
S1: PDIC means Philippine Deposit Insurance Coalition ---- S2: The PDIC provides a
maximum deposit insurance coverage of PHP500,000 per DEPOSITOR PER BANK
1/1
True; True
False; True
 
True; False
False; False
Feedback
s1: C stands for Corporation

s2: Sec. 4 of PDIC Law

 
Under AMLA: “Unlawful activity” refers to any act or omission or series or combination
thereof involving or having relation to the following, except:
1/1
Small Town Lottery playing
 
Felonies or offenses of a similar nature that are punishable under the penal laws of
other countries.
Swindling
Violations of Electronic Commerce Act of 2000
Feedback
The STL is a State-run local lottery under the control and supervision of the PCSO.
 
Which of the following statements pertaining to non-stock corporation is incorrect?
0/1
Members may vote by mail
The number of trustees may be more than 15
 
Any incidental income that it may earn may be distributed as dividends to its
members
The meetings of members may be held outside the city or municipality where the
principal office of the corporation is located

Correct answer
Any incidental income that it may earn may be distributed as dividends to its
members
Feedback
Sec. 86: For purposes of this Code and subject to its provisions on dissolution, a non-
stock corporation is one where no part of its income is distributable as dividends to its
members, trustees, or officers: Provided, That any profit which a non-stock corporation
may obtain incidental to its operations shall, whenever necessary or proper, be used for
the furtherance of the purpose or purposes for which the corporation was organized,
subject to the provisions of this Title

What is the cost of land and building, respectively?

1/1

1,050,000 and 5,435,000

1,060,000 and 5,435,000
 
1,060,000 and 5,350,000
1,145,000 and 5,350,000
Feedback
The new fence and the driveway, parking bay and safety lighting should be charged to
land improvements (unless they are included in the building's blueprint).

Land: 10k*+50k+1,000k= 1,060k

Bldg.: 230k+120k+5,000k+35k+30k+20k= 5,435k

*Option money for the unacquired land shall not be capitalized.

 
At what amount should the Estimated Premium Claims Outstanding be shown in the
December 31, 2011 financial statements of Jackson Music Emporium?
0/1

P76,660
P44,000
P84,000
 
P36,400

Correct answer
P36,400
Feedback
Estimated premium claims outstanding, January 1, 2011 P 44,800
Add: Estimated premium expense 75,600
Less: Settlement-thru distribution of premiums *84,000

Estimated premium claims outstanding, December 31, 2011 P36,400

*[Coupons redeemed/ coupons per premium=Premiums distributed 1,200,000/200 =

6,000
x net cost (P34- P20) or 14]
 
On Dec. 2, 2011, an employee filed a P3,000,000 lawsuit against Cruiser Company for
damages suffered when one of Cruiser’s plants exploded on July 20,2011. Cruiser’s
legal counsel expects the company will lose the lawsuit and estimates the loss to be
between P500,000 and P1,000,000. The employee has offered to settle the lawsuit out
of court for P900,000, but Cruiser will not agree to the settlement. In its Dec. 31, 2011
statement of financial position, what amount should Cruiser Company report as
provision from lawsuit?
0/1
1,000,000
 
3,000,000
500,000
750,000

Correct answer
750,000
Feedback
Midpoint of range= (500,000 +1,000,000) /2= P750,000

In recognizing provision, PAS 37/IAS37 requires that a provision should be recognized

when:
a. an enterprise has a present obligation (legal or constructive) as a result of past
events;
b. it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation; and
c. reliable estimate can be made on the amount of the obligation.
Since the loss from the lawsuit falls under all the three: present obligation, probable and
can be measured reliably, provision shall be recognized.

 The reasonable estimate of a range of outcome, provision should be the mid of the
range because the standard provides that: ” When there is a continuous range of
possible outcomes and each point in that range is as likely as any other, the midpoint
range shall be the best estimate.”
 
An entity incurred cost to modify a building and to rearrange a production line. As a
result, an overall reduction in production cost is expected. However, the modification
did not increase the building’s fair value and the rearrangement did not extend the
production line's life. Should the building modification cost and the production line
rearrangement cost be capitalized?
1/1
Only the production line rearrangement cost should be capitalized.
Only the building modification cost should be capitalized.
Both the building modification cost and production line rearrangement cost should be
capitalized.
 
The building modification cost and production line rearrangement cost should be
expensed.
Feedback
Overall reduction in overall cost is significant basis enough to capitalize
 
There is substantial modification of terms of an old financial liability if the gain or loss
on extinguishment is
1/1
Less than 10% of the carrying amount of the old liability
Less than 10% of the new liability
At least 10% of the carrying amount of the old liability
 
At least 10% of the new liability
Feedback
Debt Restructure
Application Guidance B3.3.6 of PFRS 9
 
At what amount should the Estimated Liability from Warranties be shown in the
December 31, 2011 statement of financial position of Jackson Music Emporium?
0/1

136,000
108,000
164,000
 
80,000

Correct answer
80,000
Feedback
Beginning balance P136,000
Add: Total warranty expense 108,000
Total P244,000

Less:
Actual warranty cost incurred for parts & labor 164,000
Estimated liability from warranties, December 31, 2011 P 80,000
 
What amount of the proceeds should be allocated to the ordinary share?
1/1

P600,000
P1,350,000
P400,000
P450,000
 
Feedback
When two classes of securities are issued at a single/basket price, then the proceeds
are allocated using the market value ratio of the securities.

Market Value
Preference share (40,000 x P30) P1,200,000
Ordinary share (20,000 x P20) 400,000
Total: P1,600,000

Ratio:
PS - 12/16
OS- 4/16

Allocation of Ordinary Share:

P1,800,000 x 4/16 = P450,000

Journal entry:
Dr.
Cash P1,800,000
Cr.
Ordinary share capital P200,000
Share premium — ordinary 250,000
Preference share capital 400,000
Share premium — preference 950,000
 
Which of the. following statements is incorrect when a government provides an
interest-free loan to an entity?
0/1
No interest expense is recognized
 
The deferred grant income is amortized over the term of the loan using the
straightline method
The interest element is amortized over the term of the loan using the effective interest
method
The loan payable is initially reported at the present value.

Correct answer
The deferred grant income is amortized over the term of the loan using the
straightline method
Feedback
Amortization shall use Effective Interest Method (PAS 20, par 10)

The question asked for the INCORRECT option.

 
The liability and equity components of the convertible debt, respectively, are
0/1

P3,696,232 and P303,768

P4,000,000 and P1,973,621
P4,000,000 and P303,768
 
P3,730,242 and P269,758

Correct answer
P3,696,232 and P303,768
Feedback
Liability Component= PV of principal + PV of periodic payments
(4M x 0.77218) + (4M x 6% x 2.53130) = P3,696,232

Equity Component = Proceeds - Liability component

(4M - P3,696,232) = P 303,768
 
What is the acquisition cost of the equipment?
0/1

3,404,160
 
2,370,000
2,804,160
3,104,160

Correct answer
2,370,000
Feedback
Acquisition cost of equipment
(cash price equivalent) P2,370,000
 
The capitalization rate is
1/1
10%
8.67%
 
8%
18%
Feedback
Capitalization rate: Total Interest Cost/Total Principal
Total Interest: (10% x 5m) +(8% x 10m) = 1.3 M
Total Principal: 10M + 5 M= 15 M
CR= (1,300,000/P15,000,000) = 8.67%

NOTE: Capitalization rate is computed based on general borrowings only.

 
Gumaca Corporation authorized the sale of P2,000,000, 12%, 10 year debentures on
January 1, 2005. Interest is payable on January 1 and July 1. The entire issue was
sold on April 1, 2005, at 102 plus accrued interest. On April 1, 2010, P 1,000,000 of
the bond issue was reacquired and retired at 99 plus accrued interest. On June 30,
2010, the remaining bonds were reacquired at 97 plus accrued interest and refunded
with an issue of P1,600,000 of 9% bonds which were sold at 100. (Use straight line
method to amortize premium or discount.) What is the total cash received from the
sale P2 million bonds on April 1, 2005?
0/1
2,000,000
2,040,000
 
2,100,000
2,120,000

Correct answer
2,100,000
Feedback
Issue Price + Accrued Interest = Total Cash Received
(P2M x 1.02) + (2Mx 12% x 3/ 12) = 2,100,000
 
What is the amortized cost of note payable?
1/1
The amount at which the note payable is initially recognized.
The amount at which the note payable is initially recognized plus or minus the
cumulative effective interest amortization of the difference between the initial carrying
amount and maturity amount.
The amount at which the note payable is initially recognized minus principal
repayment, plus or minus the cumulative effective interest amortization of the
difference between the initial carrying amount and maturity amount.
 
The amount at which the note payable is initially recognized minus principal
repayment.
 
Which of the following expenditures may properly be capitalized?
1/1
Research and development related to a long-term asset which is giving the entity a
competitive market advantage
Expenditure for massive advertising campaign
Insurance on plant during construction
 
Title search and other legal cost related to a piece of property which was not acquired
Feedback
Insurance taken in construction is a necessary and reasonable cost of bringing the
building into existence, hence shall be capitalized.
 
In January 2019, Nova Company purchased equipment at a cost of P6,000,000 to be
used in its manufacturing operations. The equipment was estimated to have a useful
life of eight years with residual value estimated at P600,000. Nova considered various
methods of depreciation and selected the sum of years’ digits method. On December
31,2020, the accumulated depreciation should have a balance of
1/1
P900,000 greater than under the straight line method
 
P900,000 greater than under the double declining balance method
P750,000 less than under the double declining balance method
P750,000 less than under the straight line method
Feedback
SYD= 8+7+6+5+4+3+2+1= 36

2009: (6M - 600k) x 8/36= 1,200,000

2010: (6M - 600k) x 7/36= 1,050,000
Total SYD Accum. Depreciation= 2,250,000

Straightline Method:
(6M - 600k) / 8 = 675,000 annually
Total Straightline Method Accum. Depreciation= 675,000 x 2= 1,350,000

Difference:
Chosen: SYD: 2,250,000
less: SLM: 1,350,000
Difference = 900,000

ACCA107 - Strategic Cost Management

5 of 14 points
 
Syelo Daet Company has a cycle time of 1.5 days, uses raw and in process (RIP)
account, and charges all conversion cost to cost of goods sold. At the end of each
month, all inventories are counted, their conversion cost components are estimated,
and inventory account balances are adjusted. Raw material cost is backflushed from
RIP to Finished Goods. The following information is for June:(see table below) To
adjust the conversion cost of Finished Goods, end *
0/1

Finished Goods account is credited for 500

Finished Goods account is debited for P500
Finished Goods account is credited for P3,500
 
Finished Goods account is debited for P3,500

Correct answer
Finished Goods account is credited for 500
Feedback
4,000-3,000=500

Since it it a decrease, a cost shall be credited.

 
A large labor efficiency variance is prorated to which of the following at year-end?
0/1
CGS: yes, WIP, inventory: no, FG, inventory: no
CGS: no, WIP, inventory: no, FG, inventory: no
CGS: no, WIP, inventory: yes, FG, inventory: yes
 
CGS: yes, WIP, inventory: yes, FG, inventory: yes

Correct answer
CGS: yes, WIP, inventory: yes, FG, inventory: yes
Feedback
MATERIAL variance cost is allocated prorata to all the three accounts
 
Compute the variable efficiency variance of 4-Cil Company, using the following data:
0/1
$300 U
$200 F
$200 U
 
$300 F

Correct answer
$300 U
Feedback
VEV= SVOH rate (AH-SH)
= 3 x [2100- (2x1000)]
=300 U*
*positive cost variance is Unfavorable

Alternative solution:
=AH x SVOH - SH x SVOH
=(2,100 x 3) - [(2x1000)x3)
=3,300-3,000
=300 U*
*positive cost variance is Unfavorable
 
Goon's Zaga Company produces 50,000 units of Product Q and 6,000 units of Product
Z during a period. In that period, four set-ups were required for color changes. All units
of Product Q are black, which is the color in the process at the beginning of the period.
A set-up was made for 1,000 blue units of Product Z; a set-up was made for 4,500 red
units of Product Z; a set-up was made for 500 green units of Product Z. A set-up was
then made to return the process to its standard black coloration and the units of
Product Q were run. Each set-up costs $5000. ------------------------------What are the
approximate per-unit set-up cost for the red units of Product Z in volume based
allocation and cost driver basis allocation respectively?
1/1
None of these
Traditional, $ 0.36; ABC, $1.11
 
Traditional, $ 2.50; ABC, $1.11
Traditional, $ 1.11; ABC, $1.01
Feedback
Traditional (volume basis):
Total setup cost: $5,000 x 4 = $20,000
Total number of units: 50,000 +6,000

$20,000/56,000 = $0.36

ABC (cost driver basis):

Set-up Cost: $5,000
Number of red units produced = 4,500 units

$5,000/4,500= $1.11
 
To backflush materials cost from Raw and In Process (RIP) to Finished Goods, the
calculation would be:
1/1
materials in ending RIP inventory plus materials received during the period minus
materials in the beginning RIP inventory
materials in beginning RIP inventory plus materials received during the period minus
materials in ending RIP inventory
 
materials in beginning finished goods inventory plus materials cost transferred from
RIP minus materials in ending finished goods inventory
materials in ending finished goods inventory plus materials cost transferred from RIP
minus materials in beginning finished goods inventory
Feedback
Reminder: Also, RIP values shall be net of conversion costs

Backflush Illustration: Carter

 
The Ekster-Meetra Company makes a variety of backpacks. The activity centers and
budgeted information for factory overhead for the year are: (see table below) Calculate
the cost per unit for each product
0/1

A, P710; B, P1,033
A, P1,232; B, P1,240
A, P620; B, P783
 
A, P783; B, P620

Correct answer
A, P710; B, P1,033
Feedback
A:
{150k+300k + [(3x50k) + (30x35k) + (120x7.5k) + (80x12.5)]}/5000 units = P710

B:
{200k+50k + [(3x15k) + (30x15k) + (120x1.2k) + (80x1.8k)]}/1000 units = P1033
 
The Steelrod Division of Joe D. Sal-CDO Company is considering an investment in a
new project. The project has an estimated cost of $1,000,000. If Metal Products
Company has a target rate of return of 12%, how large does the return on investment
on this project need to be to generate $150,000 of residual income?
0/1
15%
12%
 
25%
27%

Correct answer
27%
Feedback
Project Income - (Target Rate x Project Invested Capital) = Residual Income
(ROI x Total Assets) - (Target Rate x Project Invested Capital) = Residual Income
(ROI x $1,000,000) - (0.12 x $1,000,000) = $150,000
(ROI x $1,000,000) = $270,000
ROI = 27%
 
Information on Bulba S3 Company's direct labor costs is as follows: (see table below)
What were the actual hours worked, rounded to the nearest hour?
1/1

11,914
11,200
11,120
 
10,714
Feedback
LEV=SR(AH-SH)
4,200=3.75 (AH-10,000)
3.75AH = 4,200 + 37,500
AH = 11,120 hours
 
Mars Syal-Pags Company uses a standard cost system for its production process and
applies overhead based on direct labor hours. The following information (see the
photo provided) is available for August when Mars Syal-Pags made 4,500 units. Using
the three-variance approach, what is the spending variance?
1/1

$4,375 U
$3,625 F
$8,000 U
 
$15,750 U
Feedback
Total OH Spending Variance = Actual OH - Budgeted OH based upon Inputs Used
=(Actual Variable OH + Actual Fixed OH) - (Budgeted Variable OH based on Actual
Input used + Budgeted Fixed OH)
= $(26,250 + 38,000) - ((10,000 hrs * $1.75) + $38,750)
= $(64,250 - 56,250)
= $8,000.00 U*

*positive cost variance is UNFAVORABLE

 
Activity-based costing and activity-based management are effective in helping
managers do all of the following except
1/1
trace technology costs to products.
promote excellence standards.
analyze performance problems
identify only value-added activities.
 
Feedback
Source: Raiborn
 
Dom Nick Botor Company is a manufacturer of electronic components. The following
manufacturing information is available for the month of May: ------ Good units
manufactured: 40,000 ------ Value-added hours of manufacturing time: 20,000 ------
Total units manufactured: 50,000 ------ Total hours of manufacturing time: 30,000
------- What is the throughput per hour?
0/1
.8 units (rounded)
2.0 units
1.8 units (rounded)
 
1.3 units (rounded)

Correct answer
1.3 units (rounded)
Feedback
Throughput = (Value-added hours of manufacturing time/Total time) x (Total units /
Value-added hours of manufacturing time) x (Good Units x Total Units)

(20k/30k)x(50k/20k)x(40k/50k)= 1.33...
 
Customer measures on the balanced scorecard should be:
0/1

A
C
 
B
D

Correct answer
D
Feedback
All are included in BSC
SOURCE: Raiborn, Kinney
 
A sub-unit of an organization is evaluated on the basis of its ROI. If this sub-unit's
sales and expenses both increase by $30,000, how will the ROI, Asset Turnover, and
profit margin, respectively, be affected?
0/1
no change; increase; decrease
no change; decrease; no change
indeterminate; increase; decrease
 
increase; increase; increase

Correct answer
no change; increase; decrease
Feedback
Net Operating Income nor Average Assets will not be affected, hence no effect on ROI.

Income will increase (the numerator of AT formula), and so is the asset turnover.

The denominator of Net Profit Margin formula (the cost) will increase but the numerator
stay the same (the net profit), so the NPM will decrease.

 
Harsh Siya Company has materials cost in the June 1 Raw and In Process of
$10,000--EXCLUDING a conversion cost of $500,materials received during June of
$205,000 and materials cost in the June 30 Raw and In Process of $13,500--
INCLUDING conversion cost of $1,000. The amount to be backflushed from Raw and
In Process to Finished Goods at the end of June would be
0/1
$201,500
$202,000
 
$203,000
$202,500

Correct answer
$202,500
Feedback
Amount to be Backflused from RIP= RIP, beg + Additional Materials - RIP, end

=10,000 +205,000 -12,500

=202,500

NOTE: Conversion Cost shall be EXCLUDED.

ACCA108 - Intermediate Accounting 3

5 of 8 points
 
An entity accounted for land using the revaluation model. On October 1, 2019, the
entity classified a land as held for sale. At that date, the carrying amount of the land
was P5,000,000 and the balance in the revaluation surplus was P1,500,000. At the
same date, the fair value of the land was estimated at P5,500,000. The estimated cost
of disposal is P100,000. On December 31, 2019, the fair value less cost of disposal of
the land did not change. On October 1, 2020, the land was sold for P7,000,000. What
amount should be reported as gain on disposal of land in 2020? *
1/1
3,500,000
3,600,000
1,500,000
1,600,000
 
Feedback
7M- (5.5M-100k) = 1,600,000
 
Choose the letter corresponding the best answer.
1/1
Neither of the two
I only
II only
 
Both I and II
Feedback
IDC is a component of initial measurement of Right of Use Asset (IFRS 16, par 24)
 
Refer to the problem below. What amount of annual depreciation should Star
Company recognize during 2018?
0/1

35,539
39,539
40,000
 
None

Correct answer
39,539
Feedback
PV of Annual Rent:
PV in advance at 8% 5 years: 4.3121
4.3121 * 80,000= 344,968

PV of the Option Price:

Pv of 1 at 8% 5 years : 0.6806
0.6806 * 655,030 = 445,813

Right of use asset= 344,968+445,813= 790,781

Finance Cost:
790,781/20 years= 39,539
 
On January 1, 2020, Shy D. Company agreed to grant its employees two weeks
vacation each year with the stipulation that vacation earned each year can be taken
the following year. For the year ended December 31, 2020, the employees each
earned an average of P10,000 per week. Two hundred vacation weeks earned in 2020
were not taken during 2020. Wage rates for employees rose by an average of 10% by
the time vacation actually were taken in 2021. What amount of wages expense related
to 2020 vacation time should be reported in 2021?
1/1
0
2,000,000
200,000
 
2,200,000
Feedback
Amount of Raise:
10,000 x 10%= 1000

Number of days to be brought to 2021: 200

200 x 1000= 200,000

 
Based from the information below, what amount should be reported as current
provision for income tax expense in the income statement for the current year?
1/1

50,000
45,000
 
60,000
0
Feedback
Taxable income x Tax rate = Provision for IT Expense
150,000 x 30% = P45,000
 
The cross-reference between each line item in the financial statements and any
related information disclosed in the notes to FS
1/1
is voluntary
is mandatory
 
Depends on the Industry
Is prohibited
Feedback
TOA (Valix) 2013, Q6-11, # 1
 
On September 1, 2021, Kwini Company approved a formal plan to sell a business
segment. The sale will occur in February 2012. The segment had operating income of
P5,000,000 from January 1 to August 31, and P1,000,000 for the remainder of the
year 2021. On Dec. 31, 2021, the carrying amount of the segment was P8,000,000
and the recoverable amount was P10,000,000. The income tax rate is 35%. How
much will be reported as income from ordinary activities in the discontinued segment,
net of tax, for the year?
0/1
3,400,000
5,440,000
2,040,000
 
3,900,000

Correct answer
3,900,000
Feedback
Operating Income:
Jan- Aug (5,000,000) + Sep-Dec (1,000,000) = 6,000,000
Provision for Income tax (6M *.35) = 2,100,000

6,000,000 - 2,100,000 = 3,900,000

 
Which of the following is the most likely item to result in a deferred tax asset?
0/1
Using accelerated depreciation for tax purposes but straight line depreciation for
accounting purposes
Using the cost recovery method of recognizing construction revenue for tax purposes
but using percentage of completion method for financial reporting purposes
 
Prepaid expense
Unearned revenue

Correct answer
Unearned revenue

ACCA109 - GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT, AND

INTERNAL CONTROL
4 of 9 points
 
Examples of indirect misrepresentation about the product include the following except
1/1
false advertising
 
business ignorance
caveat emptor
deliberate withholding adverse information
Feedback
chapter 7

ACCA109 Midterms: #18

 
Which of the following audit committee responsibilities has the SEC mandated?
1/1
Obtaining each year a report by the internal auditor that addresses the company's
internal control procedures any quality control or regulatory problems, and any
relationships that might threaten the independence of the internal auditor.
Reviewing with the internal auditor any audit problems or difficulties that they have
had with management.
All of the above.
Discussing in its meetings the company's earnings guidance provided to analysts
 
Feedback
Chapter 3

ACCA109 Finals, number 35

 
Which of the following statements is false regarding fraud risk factors related to long-
lived assets?
1/1
A potential fraud scheme involves not removing sold assets from the books
Because long-lived assets are typically an audit area of low risk, auditors do not need
to perform brainstorming activities related to long-lived assets.
 
Management might use unreasonably long depreciable lives in an effort to reduce
expenses
None of the above statements is false.
Feedback
Chapter 16

Final Exam: #7
 
With respect to an internal control measure that will ensure accountability for fixed
asset retirements, management should implement control that include
0/1
Continuous analysis of miscellaneous revenue to locate any cash proceeds from sale
of plants assets.
Periodic inquiry of plant executives by internal auditors as to whether any plant
assets have been retired.
 
Periodic observation of plant assets by the internal auditors.
Continuous use of serially numbered retirement work orders.

Correct answer
Periodic observation of plant assets by the internal auditors.
Feedback
Based on ACCA109 Finals, Item number 15
(chapter 15)
 
In the “Unified Code of Conduct for Business” the logistics department commits to do
the following, except
0/1
To protect employees from retaliation when complaints are failed against them.
Not to penalize employees for refusing to pay bribes or facilitation payments even if it
results in failure to meet deadlines or revenue is lost.
 
To pay correct duties and taxes based on transparent assessment of goods and
services.
Not to tolerate any breaches or violation of existing laws in exchange for undue
advantage and unethical concessions a favors.

Correct answer
To protect employees from retaliation when complaints are failed against them.
Feedback
To protect employees from retaliation lies under Human Resources parlance
 
The technique of eliminating or reducing risk which could mean losing out on the
potential gain is called:
0/1
Risk reduction
 
Risk retention
Risk retaliation
Risk avoidance
Correct answer
Risk avoidance
Feedback
Chapter 11, p. 172
 
The following constitute unfair labor practices of an employer except:
1/1
to terminate employment of employees found to have violated company policy or
employment contract.
 
to violate a collective bargain or agreement
to discriminate with regard to wages, hours of work
to restrain employees to form a union
 
Which of the following is a common rationalization for fraudulent financial reporting?
0/1
Executives at other companies are getting paid more than we are, so we deserve the
money
Both "This is one-time transaction and it will allow the company to get through the
current financial crisis, but we'll never do it again" and "Executives at other
companies are getting paid more than we are, so we deserve the money"
This is one-time transaction and it will allow the company to get through the current
financial crisis, but we'll never do it again.
We are only borrowing the money; we will pay it back next year.
 

Correct answer
This is one-time transaction and it will allow the company to get through the current
financial crisis, but we'll never do it again.
Feedback
The other two are rationalization for theft or pilferage; not for fraudulent FINANCIAL
REPORTING.
 
Transparency and full disclosure principle advocates the following except
0/1
Meeting the information needs of investment communities
Safeguards integrity in financial reporting
Solid foundations for management oversight
Sound disclosure policies and practices
 

Correct answer
Solid foundations for management oversight
Feedback
Chapter 1, Q# 3

EXCEPT

ACCA110 - Acc Financial Management

3 of 10 points
 
Reading Railroad’s common stock is currently priced at $30, and its 8percent
convertible debentures (issued at par, or $1,000) are priced at$850. Each debenture
can be converted into 25 shares of common stock at anytime before 2010. What is the
conversion price, Pc, and the conversion value, Ct, of the bond?
0/1
$40; $ 750
$40; $ 850
 
$25; $ 750
$25; $1,000

Correct answer
$40; $ 750
Feedback
Hybrid: Conversion Price

Conversion price = Face value/Conversion ratio = $1,000/25 = $40.00.

Conversion value of bond = $30 x 25 = $750.
 
Blair Brothers’ stock currently has a price of $50 per share and is expected to pay a
year-end dividend of $2.50 per share (D1 = $2.50). The dividend is expected to grow
at a constant rate of 4 percent per year. The company has insufficient retained
earnings to fund capital projects and must, therefore, issue new common stock. The
new stock has an estimated flotation cost of $3 per share. What is the company’s cost
of equity capital?
1/1
9.21%
9.45%
9.32%
 
10.14%
Feedback
Using the Constant-Growth Valuation (Gordon) Model, the firm must issue new equity
to fund its capital projects, so we need to find the cost of new equity capital, ks:
ks = D1/(P0 - F) + g
= $2.50/($50 - $3) + 4%
= $2.50/$47 + 4%
= 5.32% + 4%
= 9.32%

Source: Brigham

Ma'am Salcedo's PPT for Cost of Capital

 
On average, a firm sells $2,000,000 in merchandise a month. It keeps inventory equal
to one-half of its monthly sales on hand at all times. If the firm analyzes its accounts
using a 365-day year, what is the firm’s inventory conversion period?
0/1
30.3 days
15.2 days
365.0 days
182.5 days
 

Correct answer
15.2 days
Feedback
Inventory conversion period (ICP)= 365/ (Sales/Inventory)

Annual sales = 12 x $2 million = $24 million.

Inventory = 0.5 x $2 million = $1 million.
ICP = 365/ ($24/$1)
= 15.2 days
 
Today is Janet’s 23rd birthday. Starting today, Janet plans to begin saving for her
retirement. Her plan is to contribute $1,000 to a brokerage account each year on her
birthday. Her first contribution will take place today. Her 42nd and final contribution will
take place on her64th birthday. Her aunt has decided to help Janet with her savings,
which is why she gave Janet $10,000 today as a birthday present to help get her
account started. Assume that the account has an expected annual return of 10
percent. How much will Janet expect to have in her account on her 65th birthday?
0/1
$ 985,703.62
$1,034,488.80
$1,085,273.98
 
$1,139,037.68

Correct answer
$1,139,037.68
Feedback
Time value of money: PV annuity due

N = 42; I/Yr = 12; PV = -1000; PMT = -2000. Then solve for FV = $2,045,442
 
Abi Corporation's EOQ for Material A is 500 units. This EOQ is based on: Annual
demand 5,000 units; Ordering costs $12.50. What is the annual carrying cost per unit
for Material A?
0/1
$2.50
 
$5.00
$0.50
$2.00
Correct answer
$0.50
Feedback
EOQ = 500 units = Sqr. Root of (2x5,000x12.5)/ CC)

CC= $0.50
 
Financial Manager makes decisions involving the following, except:
0/1
ANALYSIS AND PLANNING
ACQUISITION OF FUNDS
 
UTILIZATION OF FUNDS
DERECOGNITION OF FUNDS

Correct answer
DERECOGNITION OF FUNDS
Feedback
overview of finma
 
The following data show actual figures for selected accounts for Bye-Loan Corporation
for the calendar year 201A and selected budget figures for 201B. The company’s
accounting manager is in the process of reviewing the 201B budget and calculating
some ratios which he thinks are relevant in the review. For the year 201B, the
company expects to have a(an):
1/1
Debt-to-total assets ratio of 68.45%
Accounts receivable turnover of 3.5 times
Inventory turnover of 2.9 times
Total assets turnover of 0.76
 
Feedback
Debt to Asset Ratio: 122,400/388,000 = 31.55%

AR Turnover: 280,000/ [(56,000+80,000)/2] = 4.12 times

Inv. Turnover: 128,000/ [(64k + 56k)/2] = 2.13 times

Total Assets Turnover: 280,000/ [(348,000 + 388,000)/2] = 0.76 times
 
Which of the following ratios would a creditor, whether short-term or long-term, to a
corporation be concerned about?
1/1
High quick ratio
Low price earnings ratio
High accounts receivable turnover
High debt-to-asset ratio
 
Feedback
Higher Debt-to-Asset Ratio means the less solvent an entity is
 
The following data are available for Ahh-Villa Corporation. How much is the
percentage change in the current assets of the entity?
0/1

23.23% decrease
 
33.33% decrease
30.43% increase
23.23% increase

Correct answer
30.43% increase
Feedback
[(7,600 + 7,500 + 8,900) - (9,900+3,100+5,400)] / (9,900+3100+5400)
 
Douglas Corporation operates its factory 300 days per year. Its annual consumption of
Material Y is 1,200,000 gallons. It carries a 10,000 gallon safety stock of Material Y
and its lead time is 12 business days. What is the order point for Material Y?
0/1
48,000 gallons
 
58,000 gallons
10,000 gallons
38,000 gallons

Correct answer
58,000 gallons
Feedback
Order point = (Daily use * Lead time) + Safety Stock
= (4,000 * 12) + 10,000
= 58,000 gallons

ACCA111 - Accounting Information System

4 of 8 points
 
Internet-located resources for displaying goods and services for sale and for
conducting related sales events.
1/1
Internet Auction Markets
Cloud Computing
Electronic Storefronts
 
Internet Market Exchanges
Feedback
Source: Mr. Mitra's Resources
 
On April 1, 2021, the company showed In-stock balance of 500 units . By April 15,
purchase order was made for 75 units. The order was received by April 30. What is
the the balances of In-stock, Committed, Ordered, and Available Items, respectively,
after the transaction on April 15.
1/1
In-stock: 500, Committed: 0, Ordered: 75, Available: 575
 
In-stock: 425, Committed: 0, Ordered: 0, Available: 425
In-stock: 575, Committed: 0, Ordered: 0, Available: 575
In-stock: 500, Committed: 75, Ordered: 0, Available: 575
Feedback
the PO will result to increase in Ordered and Available Items
 
The following are examples of SQL databases, except:
1/1
MongoDB
 
MySQL
Oracle
Microsoft SQL Server
Feedback
Source: Mr. Mitra's Resources
 
It integrates business process functionality and information from all of an
organization’s functional areas(marketing and sales, cash receipts, purchasing, cash
disbursements, human resources, production and logistics, and business and financial
reporting).
1/1
Enterprise System
 
E-Business
Internal Control
Accounting Information System
Feedback
Source: Mr. Mitra's Resources
 
In SAP, characteristics of items managed by Batch include the following except
0/1
Date the items were received into inventory
Granularity
Manufacturing date
 
Expiration date

Correct answer
Granularity
Feedback
Source: Mr. Imperial's Final Exam
 
It is a set of interrelated subsystems, that works to collect, process, store, transform,
and distribute information.
0/1
Information System
System
 
Firm
Accounting Field

Correct answer
Information System
Feedback
Source: Mr. Mitra's Resources
 
The following scenarios highlight a need for a Goods Issue except
0/1
Loss of inventory due to spoilage
Warehouse theft
Returns to vendors on materials that don't meet the desired specifications
Loss if inventory due to fire
 

Correct answer
Returns to vendors on materials that don't meet the desired specifications
Feedback
Source: Mr. Imperial's ACCA111 Finals

 
Goods Issue will cause the Available quantity to
0/1
Decrease
Cannot be determined
Increase
No effect
 

Correct answer
Decrease
Feedback
Source: Mr. Imperial's Final Exam

ACCL102 - BUSINESS LAWS AND REGULATIONS

4 of 8 points
 
On January 10, 2017, S sold a piece of land to B in public instrument. On January 11,
2017, B paid for the price. On January 12, 2017, B took possession of the land. On
January 13, 2017, B registered the public instrument. Under the circumstances given,
B becomes the owner on:
1/1
January 10, 2017
 
January 12, 2017
January 13, 2017
January 11, 2017
Feedback
Ownership is transferred upon delivery: actual or constructive (Art. 1477).
Execution of a public instrument is a form of constructive delivery: legal formalities (Art.
1498)
 
Statement I: A real mortgage may guarantee future obligations, while a chattel
mortgage cannot guarantee future obligations. ------- Statement II: The mortgagee has
the right to take possession of the chattel mortgage upon default of the mortgagor.
1/1
True; False
 
False; True
False; False
True; True
Feedback
Source: Suarez

Statement 2: Pactum Commissorium or the stipulation (in pledge or mortgage) which

provides automatic forfeiture by the mere default of the debtor is VOID; as it is being in
contrary to morals and public policy.
 
Which of the following instrument is negotiable?
0/1
"I promise to pay C or order P20,000 if he will pass the CPA examination on October
2006." (Signed D)
"I promise to pay C or order P20,000 in four (4) installments." (Signed D)
 
"I promise to pay C or or order P20,000, 60 days after the death of his father."
(Signed D)
"I promise to pay C P20,000." (Signed D)

Correct answer
"I promise to pay C or or order P20,000, 60 days after the death of his father."
(Signed D)
Feedback
a: Non-negotiable- uncertain to happen; conditional

b: Non-negotiable: the installment must be stated

c: Negotiable: death cannot be determined but certain to happen

d: Non-negotiable: payable only to a specified person
 
Statement I: An instrument drawn payable to the order of the bearer is a bearer
instrument. ------- Statement II: To determine whether an order instrument is
negotiable, it must be indorsed and completed by delivery
0/1
True; False
False; True
False; False
True; True
 

Correct answer
False; True
Feedback
Statement I: instrument becomes payable to order, not to bearer
 
S orally offered to sell a certain diamond ring to B for P50,000, B accepted the offer
and to prove that he was earnest, he gave S P1,000. The parties agreed that the
delivery of the ring and the payment of the price would be made 30 day later. On due
date:
1/1
S may collect from B P50,000.
S may collect from B P49,000.
 
S cannot enforce payment because the contract was not reduced to writing.
S cannot enforce payment because there is no contract of sale yet.
Feedback
1,000 shall be deducted from the payment due because it is an earnest money
 
T steals the goods of O and deposits them in the warehouse of W. W issues to T a
warehouse receipt which by its terms indicates that goods are to be delivered to the
order of T. Thereafter, T negotiates the receipt to H who purchases the document in
good faith and for value.
0/1
H may obtain delivery of the goods from W because H was an innocent purchaser for
value
H can obtain delivery of the good from W because the issuance of the warehouse
receipt to T conferred a valid title to hi, over the goods
 
H can obtain delivery of the goods from W because the acquisition of H of the
warehouse receipt in good faith cured the defect in T's title
H cannot obtain delivery of the goods because he acquired whatever title T had over
such goods which is the title of theft

Correct answer
H cannot obtain delivery of the goods because he acquired whatever title T had over
such goods which is the title of theft
Feedback
Art. 1505 shall apply in this case.

Art 1518 or non-impairment of the validity of negotiation speaks of the theft (or
acquisition by loss, fraud, accident, mistake, duress or conversion) of the document and
not the goods covered by the document.

Bona fide holder (paid value and in good faith) of a document issued over stolen goods
cannot acquire title (1505).
 
Statement I: Future property may be valid object of a contract of pledge or mortgage.
------ Statement II: If the creditor was deceived on the substance of quality of the thing
pledged, his only rights is to immediately demand the payment of the principal
obligation.
0/1
True; False
 
False; False
True; True
False; True

Correct answer
False; False
Feedback
Source: Suarez
 
A sold to B a parcel of land for P3.8M. The sale is evidenced by a memorandum of
agreement of sale written in the Bicolano dialect. One week later, A sold the same
parcel of land to C for P4M. This is evidenced by a formal deed of sale. Upon buying
the property, C, who was aware of the first sale, immediately took possession of the
lot. When informed of the second sale, B subsequently registered an adverse claim to
the property. Later, C registered the deed of sale in her favor. The parcel of land shall
belong to:
1/1
B because he has got an older title
 
No one as both sales are void
C because he is the first to register
C because he is the first to take possession
Feedback
Order of Preference in Case of Double Sale: (IMMOVABLE)
1. First registrant of the sale to the Registry of Property
2. First possessor (actual or constructive)
3. Who presents the oldest title

IMPORTANT NOTE: Buyer shall be in Good Faith

C is in BAD FAITH, hence B shall be preferred.

ACCL103 - REGULATORY FRAMEWORK AND LEGAL ISSUES IN BUSINESS

6 of 8 points
 
(1) Members of the primary cooperative, and also the cooperative itself, may own or
hold more than ten percent (10%) of the cooperative's share capital. (2) Cooperatives
registered under the Cooperative Code shall be subject to an annual financial,
performance and social audit.
1/1
True; False
False, True
 
False; False
True; True
 
In all the following cases, the deposits may be examined, inquired, or looked into by
any person, government official, bureau or office, except:
1/1
When permitted (written) by the DEPOSITOR
In cases of IMPEACHMENT
When the depositor is an APPOINTED public official
 
In cases where the money deposited or invested is the subject matter of LITIGATION
 
The articles of incorporation of Byen Corporation provide for the issuance of 100,000
shares without par value and par value is P10.00 per share. At the time of
incorporation, the subscription and paid-up capital should not be less than:
1/1
P250,000.00 and P62,500.00, respectively
P1,000,000.00 and P250,000.00, respectively
P250,000.00 and P125,000.00, respectively
None of the above
 
Feedback
Sec. 13 of the old Corporation Code has already been deleted in the Revised
Corporation Code. There is no longer any minimum capital subscription and payment
required under the Revised Corporation Code.
 
What is the amount of insured deposit under PDIC Law?
1/1
Maximum of Php 500,000.00, gross
Minimum of Php 500,000.00, gross
Maximum of Php 500,000.00, net
 
Maximum of $250,000, gross
 
Go-Cola Corporation's articles of incorporation provide for 7 directors and an
authorized capital stock of P1,000,000.00 divided into 10,000.00 shares with a par
value of P100.00 per share. In the election of directors for 2020, the following ran for
the position: A, B, C, D, E, F, G, and H. On that date, the corporation had 7,000.00
outstanding shares of which 5,000 shares have been paid in full, while 2,000 shares
were paid to the extent of 50% of the subscription price. All the shares were
subscribed at par value and covered by a binding subscription agreement. (a)If you
were a stockholder who owns 500 shares, how many vote are you entitled to cast in
the election of directors? (b) how many shares are issued by the corporation?
0/1
500 votes; 5,000 shares
500 votes; 7,000 shares
 
3,500 votes; 7,000 shares
3,500 votes; 5,000 shares

Correct answer
3,500 votes; 7,000 shares
Feedback
There is as many votes as there are shares multiplied by the number of directors to be
elected; A subscribed share is considered as part of the outstanding shares of stock
 
Suppose A is the managing partner and C entered into contract with a supplier to
deliver materials to be used by the business of the partnership, which of the
statements below is correct?
1/1
The act of C is not binding to the partnership
Since A is the managing partner, the contract entered into by C is unenforceable
The partnership is bound to respect the contract entered into by C
 
C may be evicted from the partnership
 
____________ states that no administrative, criminal or civil proceedings shall lie
against any person for having made a covered transaction or suspicious transaction
report in the regular performance of his duties and in good faith, whether or not such
reporting results in any criminal prosecution under the AMLA or any other Philippine
law.
1/1
Safety Net Provision
Safe Harbor Provision
 
Enhanced Due Diligence
Modified Enhanced Due Diligence
 
Jenny, Perla, and G. Da-an are partners. Their contributions are as follows: Jenny,
P60,000.00; Perla, P40,000.00; and G. Da-an services. The partners agreed to divide
the profits and losses in the following proportions: Jenny, 35%; Perla, 25%; and G.
Da-an 40%. If there is a loss of P10,000.00, how much should the said loss of
P10,000.00 be shared by the partners?
0/1
Jenny, P6,000; Perla, P4,000; G. Da-an, 0
Jenny, P3,333; Perla, P3,333; G. Da-an, P3,334
Jenny, P3,500; Perla, P2,500; G. Da-an, P4,000
 
Jenny, 0 ; Perla, 0 ; G. Da-an, P10,000

Correct answer
Jenny, P6,000; Perla, P4,000; G. Da-an, 0
Feedback
An industrial partner do not share in the losses even if there is an agreement stipulated
by
the partners. See Art. 1797.

31. The discontinued operations section of the income statement refers to

d. the disposal of a significant segment of a business.

32. Which one of the following would be classified as an extraordinary item?

a. Expropriation of property by a foreign government

33. When a change in accounting principle occurs,

b. the new principle should be used in reporting the results of operations of the current year.

34. If an item meets one (but not both) of the criteria for an extraordinary item, it
d. is reported at its gross amount as an "other revenue or gain" or "other expense or loss."

35. The order of presentation of nontypical items that may appear on the income statement
is
b. Discontinued operations, Extraordinary items, Change in accounting principle.

36. In analyzing the financial statements of a company, a single item on the financial
statements
b. must be compared with other financial data to provide more information.

37. Comparisons of financial data made within a company are called

a. intracompany comparisons.

38. Which one of the following is not a tool in financial statement analysis?
b. Circular analysis

39 In analyzing financial statements, horizontal analysis is a

b. tool.

40. Horizontal analysis is also known as

c. trend analysis.

41. Under which of the following cases may a percentage change be computed?
a. The trend of the amounts is decreasing but all amounts are positive.

42. Horizontal analysis is a technique for evaluating a series of financial statement data over a
period of time
d. to determine the amount and/or percentage increase or decrease that has taken place.

43. Horizontal analysis is a technique for evaluating financial statement data

b. over a period of time.

44. Assume the following sales data for a company:

2003 $1,800,000
2002 1,500,000
2001 1,000,000
If 2001 is the base year, what is the percentage increase in sales from 2001 to 2003?
c. 80%

45. Comparative balance sheets are usually prepared for

b. two years.

46. Vertical analysis is also known as

b. common size analysis.

47. Vertical analysis is a technique that expresses each item in a financial statement
c. as a percent of a base amount.

48. In vertical analysis,

a. a base amount is required.

49. In performing a vertical analysis, the base for prepaid expenses is

b. total assets.

50. In performing a vertical analysis, the base for sales revenues on the income statement is
a. net sales.

51. In performing a vertical analysis, the base for sales returns and allowances is
c. net sales.

52. In performing a vertical analysis, the base for cost of goods sold is
b. net sales.

53. Which one of the following is not a characteristic generally evaluated in ratio analysis?
c. Marketability

54. Short-term creditors are usually most interested in assessing

b. liquidity.

55. Long-term creditors are usually most interested in evaluating

d. solvency.

56. Stockholders are most interested in evaluating

c. profitability.

57. In ratio analysis, the ratios are never expressed as a

b. logarithm.

58. The current ratio is

b. used to evaluate a company's liquidity and short-term debt paying ability.

59. The acid-test or quick ratio

b. relates cash, short-term investments, and net receivables to current liabilities.

60. Winter Clothing Store had a balance in the Accounts Receivable account of $390,000 at
the beginning of the year and a balance of $410,000 at the end of the year. Net credit sales
during the year amounted to $4,000,000. The average collection period of the receivables in
terms of days was
d. 37 days.

61. Pine Hardware Store had net credit sales of $6,500,000 and cost of goods sold of
$5,000,000 for the year. The Accounts Receivable balances at the beginning and end of the
year were $600,000 and $700,000, respectively. The receivables turnover was
d. 10 times.

Winslow Department Store had net credit sales of $16,000,000 and cost of goods sold of
$12,000,000 for the year. The average inventory for the year amounted to $2,000,000.
62. Inventory turnover for the year is
c. 6 times.

63. The average days in inventory during the year was

b. 61 days.

64. Which one of the following would not be considered a liquidity ratio?
d. Return on assets

65. Asset turnover measures

b. how efficiently a company uses its assets to generate sales.

66. The profit margin ratio is calculated by dividing

d. net income by net sales.

Terry Corporation had net income of $200,000 and paid dividends to common stockholders of
$40,000 in 2002. The weighted average number of shares outstanding in 2002 was 50,000
shares. Terry Corporation's common stock is selling for $60 per share on the New York Stock
Exchange.
67. Terry Corporation's price-earnings ratio is
b. 15 times.

68. Terry Corporation's payout ratio for 2002 is

c. 20%.

69. Grand Company reported the following on its income statement:

Income before income taxes $400,000
Income tax expense 100,000
Net income $300,000
An analysis of the income statement revealed that interest expense was $100,000. Grand
Company's times interest earned was
a. 5 times.

70. The debt to total assets ratio measures

d. the percentage of the total assets provided by creditors.

71. Trading on the equity (leverage) refers to the

c. use of borrowed money to increase the return to owners.

72. The current assets of Key Company are $150,000. The current liabilities are $100,000.
The current ratio expressed as a proportion is
b. 1.5:1
73. The acid-test ratio is also referred to as the
b. quick ratio.

74. A weakness of the current ratio is

b. that it doesn't take into account the composition of the current assets.

75. A supplier to a company would be most interested in the

c. current ratio.

76. Which one of the following ratios would not likely be used by a short-term creditor in
evaluating whether to sell on credit to a company?
c. Asset turnover

77. Ratios are used as tools in financial analysis

b. because they can provide information that may not be apparent from inspection of the
individual components of a particular ratio.

78. The ratios that are used to determine a company's short-term debt paying ability are
d. current ratio, acid-test ratio, receivables turnover, and inventory turnover.

79. Tyner Company had $250,000 of current assets and $90,000 of current liabilities before
borrowing $60,000 from the bank with a 3-month note payable. What effect did the
borrowing transaction have on Tyner Company's current ratio?
c. The ratio decreased.

80. A liquidity ratio measures the

c. short-term ability of the enterprise to pay its maturing obligations and to meet unexpected
needs for cash.

81. If equal amounts are added to the numerator and the denominator of the current ratio,
the ratio will always
b. decrease.

82. The acid-test ratio

c. does not include inventory as part of the numerator.

83. If a company has an acid-test ratio of 1.2:1, what respective effects will the borrowing of
cash by short-term debt and collection of accounts receivable have on the ratio?
Short-term Borrowing Collection of Receivable
c. Decrease No effect

84. A company has a receivables turnover of 10 times. The average net receivables during
the period are $300,000. What is the amount of net credit sales for the period?
b. $3,000,000.
85. If the average collection period is 30 days, what is the receivables turnover?
b. 12.2 times

86. A general rule to use in assessing the average collection period is

d. that it should not greatly exceed the credit term period.

87. Inventory turnover is calculated by dividing

c. cost of goods sold by the average inventory.

88. A company has an average inventory on hand of $40,000 and its average days in inventory
is 73 days. What is the cost of goods sold?
a. $200,000.

89. A successful grocery store would probably have

b. a high inventory turnover.

90. An aircraft company would most likely have

d. a low inventory turnover.

91. Net sales are $6,000,000, beginning total assets are $2,800,000, and the asset turnover is
3.0. What is the ending total asset balance?
b. $1,200,000.

92. The numerator of the times interest earned ratio is

d. net income + interest expense + income taxes.

93. The return on common stockholders’ equity ratio is computed by dividing net income
c. minus preferred stock dividends by average common stockholders’ equity.

94. The return on assets ratio is affected by the

d. asset turnover and profit margin ratios.

95. Measures of the short-term ability of the enterprise to pay its maturing obligations are
a. liquidity ratios.

96. A measure of a company’s immediate short-term liquidity is the

d. acid-test ratio.

97. The ratio that indicates a company’s degree of financial leverage is the
b. debt to total assets ratio.

98. Earnings per share is computed by dividing net income

c. less preferred stock dividends by average common shares outstanding.
99. A measure of how efficiently a company uses its assets to generate sales is the
d. asset turnover ratio.

100. A limitation in calculating ratios in financial statement analysis is that

c. some account balances may reflect atypical data at year end.

101. Which of the following is not a limitation of financial statement analysis?

d. The availability of information

102. The use of alternative accounting methods

b. may be a problem in ratio analysis even if disclosed.

103. Traditional financial statements are based on

a. unadjusted cost.

104. Estimates are used in financial statements in determining all of the following except
b. cost of goods sold.

105. In addition to differences in inventory costing methods, differences also exist in

reporting all of the following except
d. warranty costs

1. Working capital management involves investment and financing decisions related to:
C. current assets and current liabilities.

17. The goal of managing working capital, such as inventory, should be to minimize the:
C. aggregate of carrying and shortage costs

5. Zap Company follows an aggressive financing policy in its working capital management
while
Zing Corporation follows a conservative financing policy. Which one of the following
statements is correct?
B. Zap has a low current ratio while Zing has a high current ratio.

6. Which of the following would increase risk?

C. Increase the amount of short-term borrowing.

2. As a company becomes more conservative with respect to working capital policy, it would
tend to have a(n)
D. Increase in the ratio of current assets to current liabilities.

3. Short-term financing plans with high liquidity have:

B. moderate return and moderate risk
4. Temporary working capital supports
D. seasonal peaks.

7. The transaction motive for holding cash is for:

B. daily operating requirements

8. The difference between the cash balance on the firm's books and the balance shown on the
bank statement is called:
B. float

9. The length of time between payment for inventory and the collection of cash is referred to
as:
D. cash conversion cycle

10. As a firm's cash conversion cycle increases, the firm:

B. increases its investment in working capital

11. The longer the firm's accounts payable period, the:

D. less the firm must invest in working capital.

12. The average length of time a peso is tied up in current asset is called the:
D. cash conversion period.

13. All of these factors are used in credit policy administration except:
C. peso amount of receivables

14. Which of the following statements is most correct? If a company lowers its DSO, but no
changes occur in sales or operating costs, then:
B. the company might well end up with a lower debt ratio.

15. All but which of the following is considered in determining credit policy?
C. Accounts payable deferral period

16. The use of safety stock by a firm will:

C. have no effect on inventory costs

18. When a specified level of safety stock is carried for an item in inventory, the average
inventory level for that item
D. Increases by the number of units of the safety stock.
19. Which of the following statements is correct for a firm that currently has total costs of
carrying and ordering inventory that are 50% higher than total carrying costs?
A. Current order size is greater than optimal
20. With credit terms of 3/8, n/30, what is the customer’s payment decision date?
B. The 8th day is the customer’s decision date.

Casie Company turns out 200 calculators a day at a cost of P250 per calculator for materials
and variable conversion cost. It takes the firm 18 days to convert raw materials into
calculator. Casie’s usual credit terms extended to its customers is 30 days, and the firm
generally pays its suppliers in 20 days.
If the foregoing cycles are constant, what amount of working capital must Casie Company
finance?
A. P1,400,000

Luke Company has an inventory conversion period of 60 days, a receivables conversion period
of 45 days, and a payments cycle of 30 days. What is the length of the firm’s cash conversion
cycle?
B. 75 days

The Spades Company has an inventory conversion period of 75 days, a receivables conversion
period of 38 days, and a payable payment period of 30 days. What is the length of the firm’s
cash conversion cycle?
A. 83 days

Samaritan Supplies, Inc. has P5 million in inventory and P2 million in accounts receivable. Its
average daily sales are P100,000. The company has P1.5 million in accounts payable. Its
average daily purchases are P50,000. What is the length of the company’s cash conversion
period?
D. 40 days

What is the inventory period for a firm with an annual cost of goods sold of P8 million, P1.5
million in average inventory, and a cash conversion cycle of 75 days?
D. 67.50 days
Samaritan Supplies, Inc. has P5 million in inventory and P2 million in accounts receivable. Its
average daily sales are P100,000. The company has P1.5 million in accounts payable. Its
average daily purchases are P50,000. What is the length of the company’s inventory
conversion period?
A. 50 days

Simile Inc. has a total annual cash requirement of P9,075,000 which are to be paid uniformly.
Simile has the opportunity to invest the money at 24% per annum. The company spends, on
the average, P40 for every cash conversion to marketable securities.
What is the optimal cash conversion size?
B. P55,000 Opportunity cost

Hyperbole Corporation estimates its total annual cash disbursements of P3,251,250 which are
to be paid uniformly. Hyperbole has the opportunity to invest the money at 9% per annum.
The company spends, on the average, P25 for every cash conversion to marketable securities
and vice versa.
What is the opportunity cost of keeping cash in the bank account?
B. P1,912.50

What are the expected annual savings from a lock-box system that collects 150 checks per
day averaging P500 each, and reduces mailing and processing times by 2.5 and 1.5 days
respectively, if the annual interest rate is 7%?
C. P 21,000

The Camp Company has an inventory conversion period of 60 days, a receivable

conversion period of 30 days, and a payable payment period of 45 days. The Camp’s variable
cost ratio is 60 percent and annual fixed costs of P600,000. The current cost of capital for
Camp is 12%.
If Camp’s annual sales are P3,375,000 and all sales are on credit, what is the firm’s carrying
cost on accounts receivable, using 360 days year?
C. P 20,250

Caja Company sells on terms 3/10, net 30. Total sales for the year are P900,000. Forty percent
of the customers pay on the tenth day and take discounts; the other 60 percent pay, on
average, 45 days after their purchases.
What is the average amount of receivables?
B. P77,500

Palm Company’s budgeted sales for the coming year are P40,500,000 of which 80% are
expected to be credit sales at terms of n/30. Palm estimates that a proposed relaxation of
credit standards will increase credit sales by 20% and increase the average collection period
from 30 days to 40 days. Based on a 360-day year, the proposed relaxation of credit to
standards will result in an expected increase in the average accounts receivable balance of
D. P1,620,000

Currently, La Carlota Company has annual sales of P2,500,000. Its average collection period is
45 days, and bad debts are 3 percent of sales. The credit and collection manager is
considering instituting a stricter collection policy, whereby bad debts would be reduced to 1.5
percent of total sales, and the average collection period would fall to 30 days. However, sales
would also fall by an estimated P300,000 annually. Variable costs are 75 percent of sales and
the cost of carrying receivables is 10 percent. Assume a tax rate of 40 percent and 360 days
per year.
What would be the decrease in investment in receivables if the change were made?
C. P 96,875

Sonata Company is considering changing its credit terms from 2/15, net 30 to 3/10, net 30 in
order to speed collections. At present, 40 percent of Sonata Company‘s customers take the 2
percent discount. Under the new term, discount customers are expected to rise to 50
percent.
Regardless of the credit terms, half of the customers who do not take the discount are
expected to pay on time, whereas the remainder will pay 10 days late. The change does not
involve a relaxation of credit standards; therefore bad debt losses are not expected to rise
above their present 2 percent level. However, the more generous cash discount terms are
expected to increase sales from P2 million to P2.6 million per year. Sonata Company’s
variable cost ratio is 75 percent, the interest rate on funds invested in accounts receivable is 9
percent, and the firm’s income tax rate is 40 percent.

What are the days sales outstanding (DSO) before and after the change of credit policy?
A. 27.0 days and 22.5 days, respectively

The incremental carrying cost on receivable is

A. P 843.75

The incremental after tax profit from the change in credit terms is
A. P68,493

What is the economic order quantity for the following inventory policy: A firm sells 32,000
bags of premium sugar per year. The cost per order is P200 and the firm experiences a
carrying cost of P0.80 per bag.
B. 4,000 bags

Marsman Co. has determined the following for a given year:

Economic order quantity (standard order size) 5,000 units
Total cost to place purchase orders for the year P40,000
Cost to place one purchase order P 100
Cost to carry one unit for one year P 4
What is Marsman’s estimated annual usage in units?
B. 2,000,000

BIBO Company is a distributor of videotapes. Pirate Mart is a local retail outlet which sells
blank and recorded videos. Pirate Mart purchases tapes from BIBO Company at P300.00 per
tape; tapes are shipped in packages of 20. BIBO Company pays all incoming freight, and Pirate
Mart does not inspect the tapes due to BIBO Company's reputation for high quality. Annual
demand is 104,000 tapes at a rate of 4,000 tapes per week. Pirate Mart earns 20% on its cash
investments. The purchase-order lead time is two weeks.
The following cost data are available:
Relevant ordering costs per purchase order P80 P90.50
Carrying costs per package per year 3
Relevant insurance, materials handling, breakage, etc., per year 2 P 4.50
What is the required annual return on investment per package?
C. P1,200
For Raw Material L12, a company maintains a safety stock of 5,000 pounds. Its average
inventory (taking into account the safety stock) is 12,000 pounds. What is the apparent order
quantity?
C. 14,000 lbs.

Each stockout of a product sold by Arnis Co. costs P1,750 per occurrence. The company’s
carrying cost per unit of inventory is P5 per year, and the company orders 1,500 units of
product 20 times a year at a cost of P100 per order. The probabilities of a stockout at various
levels of safety stock are:
Units of Safety Stock Probability of Stockout
D. 400 units

Paeng Company uses the EOQ model for inventory control. The company has an annual
demand of 50,000 units for part number 6702 and has computed an optimal lot size of 6,250
units. Per-unit carrying costs and stockout costs are P9 and P4, respectively. The following
data have been gathered in an attempt to determine an appropriate safety stock level:
B. 300 units

Durable Furniture Company uses about 200,000 yards of a particular fabric each year. The
fabric costs P25 per yard. The current policy is to order the fabric four times a year.
Incremental ordering costs are about P200 per order, and incremental carrying costs are
about P0.75 per yard, much of which represents the opportunity cost of the funds tied up in
inventory.
How much total annual costs are associated with the current inventory policy?
A. P19,550

Narra Company is considering a switch to level production. Cost efficiencies will occur under
level production and after tax cost would decline by P70,000 but inventory would increase
from P1,000,000 to P1,800,000. Narra would have to finance the extra inventory at a cost of
10.5 percent.
What is the maximum interest rate that makes level production feasible?
C. 8.75 percent

Diesel Fashion estimates that 90,000 zippers will be needed in the manufacture of high selling
products for the coming year. Its supplier quoted a price of P25 per zipper. Diesel planned to
purchase 7,500 units per month but its supplier could not guarantee this delivery schedule. In
order to ensure availability of these zippers, Diesel is considering the purchase of all these
90,000 units on January 1. Assuming Diesel can invest cash at 12%, the company’s
opportunity cost of purchasing the 90,000 units at the beginning of the year is
C. P123,750
If a firm is given a trade credit terms of 2/10, net 30, then the cost to the firm failing to take
the discount is:
C. 36.7%

The cost of discounts missed on credit terms of 2/10, n/60 is

B. 14.9

You plan to borrow P10,000 from your bank, which offers to lend you the money at a 10
percent nominal, or stated, rate on a one-year loan. What is the effective interest rate if the
loan is a discount loan?
B. 11.11%

What is the effective rate of a 15% discounted loan for 90 days, P200,000, with 10%
compensating balance? Assume 360 days per year.
C. 17.4%

The Premiere Company obtained a short-term bank loan for P1,000,000 at an annual interest
rate 12%. As a condition of the loan, Premiere is required to maintain a compensating
balance of P300,000 in its checking account. The checking account earns interest at an annual
rate of 3%. Premiere would otherwise maintain only P100,000 in its checking account for
transactional purposes. Premiere’s effective interest costs of the loan is
B. 14.25%

Perlas Company borrowed from a bank an amount of P1,000,000. The bank charged a 12%
stated rate in an add-on arrangement, payable in 12 equal monthly installments.
A. 22.15%

A company has accounts payable of P5 million with terms of 2% discount within 15 days, net
30 days (2/15 net 30). It can borrow funds from a bank at an annual rate of 12%, or it can wait
until the 30th day when it will receive revenues to cover the payment. If it borrows funds on
the last day of the discount period in order to obtain the discount, its total cost will be
C. P 75,500 less

Every 15 days a company receives P10,000 worth of raw materials from its suppliers. The
credit terms for these purchases are 2/10, net 30, and payment is made on the 30th day after
each delivery. Thus, the company is considering a 1-year bank loan for P9,800 (98% of the
invoice amount). If the effective annual interest rate on this loan is 12%, what will be the net
peso savings over the year by borrowing and then taking the discount on the materials?
A. P3,624

An invoice of a P100,000 purchase has credit terms of 1/10, n/40. A bank loan for 8 percent
can be arranged at any time. When should the customer pay the invoice?
B. Pay on the 10th
The Peninsula Commercial Bank and Island Corporation agreed to the following loan
proposal:
• Stated interest rate of 10% on a one-year discounted loan; and
• 15% of the loan as compensating balance on zero-interest current account to be maintained
by Island Corporation with Peninsula Commercial Bank.
The loan requires a net proceeds of P1.5 million. What is the principal amount of loan applied
for as part of the loan agreement?
B. P2,000,000

Of the following, which is the best reason for using activity-based costing?
to better assign overhead costs to products

The three primary inventory accounts in a manufacturing company are

Raw Material Inventory, Work in Process Inventory, and Finished Goods Inventory

The relevant range is valid for all levels of activity false

Traditional overhead allocations result in which of the following situations?

High-volume products are assigned too much overhead, and low-volume products are
assigned too little overhead.
he return on investment (ROI) ratio measures
both asset turnover and earnings as a percent of sales

Building depreciation is generally considered a product or process level cost False

For one product that a firm produces, the manufacturing cycle efficiency is 25 percent. If the
total production time is 10 hours, what is the total manufacturing time?
40.0 hours

A variable cost remains constant on a per-unit basis as production increases.

True

Period costs
are expensed in the same period in which they are incurred

p746

Product costing systems in use over the last 40 years

were often technologically incapable of handling activity-based costing information.

A favorable fixed overhead spending variance indicates that

actual fixed overhead is less than budgeted fixed overhead.
A cost that shifts upward or downward when activity changes by a certain interval is referred
to as a mixed cost
False

Under activity-based costing, benchmarks for product cost should contain an allowance for
None of the responses are correct.

The formula to compute cost of goods manufactured is

beginning Work in Process Inventory plus direct labor plus direct material used plus overhead
incurred minus ending Work in Process Inventory

The formula for cost of goods sold for a manufacturer is

beginning Finished Goods Inventory plus Cost of Goods Manufactured minus ending Finished
Goods Inventory

Total actual overhead minus total budgeted overhead at the actual input production level
equals the *
total overhead spending variance

In allocating variable costs to products, *

a volume-based cost driver should be used.

Which of the following replaces the retailing component "Purchases" in computing Cost of
Goods Sold for a manufacturing company?
cost of goods manufactured

Under the two-variance approach, the volume variance is computed by subtracting ____
based on standard input allowed for the production achieved from budgeted overhead.
applied overhead

Relative to traditional product costing, activity-based costing differs in the way costs are
Allocated

Variable cost per unit remains constant within the relevant range
True

Comic Book Division of Andres Publishing Corporation has a profit margin of 30%. If total
sales rise by p100,000, the net result will be
no change in the profit margin ratio

A cost driver
has a direct cause-effect relationship to a cost
Which of the following is not a product cost component?
commission on the sale of a product