PDF Board of Certified Public Acct Shane Ojt DL


A1 PASSERS TRAINING, RESEARCH, REVIEW & DEVELOPMENT COMPANY

2nd Floor Sommerset Bldg., Lopez Jaena St. Jaro, Iloilo City
Tel. No.: (033) 320-2728; 09106547262
Email Address: [email protected]
BOARD OF CERTIFIED PUBLIC ACCOUNTANT
CERTIFIED PUBLIC ACCOUNTANT Licensure Examination SET A
THEORY OF ACCOUNT
GENERAL INSTRUCTIONS:
1. This test booklet contains 100 test questions.
2. Read INSTRUCTIONS TO EXAMINEES printed on your answer sheet.
3. Shade only one (1) box for each question on your answer sheets. Two or more boxes shaded will invalidate
your answer.
4. AVOID ERASURES.
INSTRUCTIONS:
1. Detach one (1) answer sheet from the bottom of your Examinee ID/Answer Sheet Set.
2. Write the subject title “THEORY OF ACCOUNT” on the box provided.
3. Shade Set Box “A” on your answer sheet if your test booklet is Set A; Set Box “B” if your test booklet is Set B.
__________________________________________________________________________________________
1. General –purpose financial statements are the product of

a. Financial accounting
b. Managerial accounting
c. Both financial and managerial accounting
d. Neither financial accounting nor managerial accounting
2. Which of the following statements is not an objective of financial reporting?
a. To provide information that is useful in investment and credit decision.
b. To provide information about resources claims against those resources and changes in them.
c. To provide information on the liquidation value of an entity.
d. To provide information that is useful in assessing cash flow prospects.
3. The purpose of the International Accounting Standards Board is to
a. Issue enforceable standard which regulate the financial reporting of multinationals.
b. Develop a uniform currency in which the financial transactions of entities throughout the world would
be measured.
c. Develop a single set of high quality IFRS.
d. Arbitrate accounting disputes between auditors and international entities.
4. The underlying theme of the conceptual framework is
a. Decision usefulness c. Reliability
b. Understand ability d. Comparability
5. The Conceptual Framework includes all of the following except
a. Objective of financial reporting d. Qualitative characteristics of accounting
b. Supplementary information information
c. Elements of financial statements
6. Which of the following is a fundamental quality of useful accounting information?
a. Conservatism c. Faithful representation
b. Comparability d. Consistency
7. In the Conceptual Framework an enhancing qualitative characteristic is
a. Predictive value c. Timeliness
b. free from error d. Confirmatory value
8. Which of the following is not a basic element of financial statements?

a. Asset c. Equity
b. Statement of financial position d. Income
9. Which of the following is not a basic assumption underlying the financial accounting structure?
a. Economic entity assumption c. Periodicity assumption
b. Going concern assumption d. Historical cost assumption
10. During the lifetime of an entity accountants produce statements at artificial points in time.
a. Objectivity c. Economics entity
b. Periodicity d. Going concern
11. When revenue is generally recognized?
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 1
a. When cash is received c. When production is completed
b. When the warranty expire d. When the sale occurs
12. Which of the following is not a required component of financial statements?
a. President’s letter to shareholders c. Income statement
b. Statement of financial position d. Notes to financial statements
13. Under Philippine Financial Reporting Standards note to the financial statements
a. Must be quantifiable.
b. Must qualify as an element.
c. Amplify or explain items presented in the main body of the financial statements.
d. All of the choice are correct regarding notes to the financial statements.
14. Nominal accounts are also called
a. Temporary accounts c. Real accounts
b. Permanent accounts d. Mixed account
15. A trial balance may prove that debits and credit are equal but
a. An amount could be entered in the wrong account.
b. A transaction could have been entered twice
c. A Transaction could have been omitted.
d. All of these.
16. A journal entry to record a receipt of rent revenue in advance will include a
a. Debit to revenue c. Credit to cash
b. Credit to rent revenue d. Credit to unearned rent
17. An Adjusting entry to record an receipt and accrued expense involves a debit to
a. Expense account and a credit to an prepaid account.
b. Expense account and a credit to cash.
c. Expense account and a credit to a liability account.
d. Liability account and a credit to an expense account.
18. Reversing entries do not apply to which of the following items?
a. Unearned revenue c. Prepaid insurance
b. Accrued wages d. Depreciation
19. The statement of financial position information is useful for all of the following except
a. To compute rates of return c. To evaluate capital structure
b. to analyze cash inflows and outflow for d. To assess future cash flow
the period
20. A segment is to be reported separately when the segment revenue exceeds 10% of
a. Total combined revenue of all segments reporting profits.
b. Total revenue of all the entity‘s industry segments.
c. Total export and foreign sales.
d. Combined net income of all segment reporting profits.
21. All of the following statements are true regarding interim reporting, except
a. PFRS requires a complete set of financial statements at the interim reporting date.
b. PFRS requires entities to expense interim amount like advertising expenditures that could
Benefit later interim period.
c. PFRS allows a condensed set or complete set of financial statements.
d. No accruals or deferrals in anticipation of future events during the year should be reported.
22. Which of the following would represent the least likely use of an income statement
a. Use by customers to determine an entity’s ability to provide needed goods and services.
b. Use by labor union s to examine earnings closely as a basis for salary discussions.
c. Use by government agencies to formulate tax and economic policy.
d. Use by investors interested in the financial position of the entity.
23. A change in accounting policy requires what kind of adjustment to the financial statements?
a. Current period adjustment c. Retrospective adjustment
b. Prospective adjustment d. Current and prospective adjustment
24. Changes in accounting estimate affect report amounts
a. Retrospectively only c. Currently and prospectively
b. Prospectively only d. Currently and retrospectively
25. Which of the following does not appear in a statement of retained earnings?
a. Net loss c. Preference share dividends
b. Prior period adjustment d. Other comprehensive income
26. Which is not acceptable in displaying the components of other comprehensive income?
a. Combined statement of retained earning c. Combined statement of comprehensive
b. Second income statement income
d. All of the above are acceptable
27. Which of the following items should not be included in “cash”?
a. Coins and currency in the cash register
b. Checks from other parties presently in the cash register
c. Amounts on deposit in checking account at the bank
d. Postage stamps on hand
28. A cash equivalent is a short-term highly liquid investment that is readily convertible into know amount
of cash and
a. Is acceptable as a means to pay current liabilities.
b. Has a current market value that is greater than original cost
c. Bears an interest rate that at least equal to the prime rate of interest.
d. Is so near its maturity than it presents insignificant risk of changes in interest rates.
29. All of the following are problems associated with the valuation of accounts receivable, except
a. Uncollectible accounts c. Cash discounts under the net method
b. Returns d. Allowances granted
30. Which of the following methods of determining bad debt expense does not properly match expense and
revenue?
a. Charging bad debts with a percentage of sales under the allowance method.
b. Charging bad debts with an amount derived from percentage of accounts receivable under the
allowance method.
c. Charging bad debts with an amount derived from aging accounts receivable under the allowance
method.
d. Charging bad debts as accounts are written off as uncollectible.
31. Which of the following statements best describes the term “liabilities”?
a. An excess of equity over current assets
b. Resources to meet financial commitment as they fall due
c. The residual interest in the assets of the entity after deducting all of its liabilities
d. A present obligation of the entity arising fro past events
32. Which of the following statements best describes the term ‘financial position’?
a. The net income and expenses of an entity
b. The financial assets less financial liabilities of an entity
c. The potential to contribute to the flow of cash and cash equivalents to the entity
d. The assets liabilities and equity of an entity
33. Which of the following should not be taken into account when determining the cost of inventories?
a. Storage cost of part-finished goods
b. Trade discounts Recoverable purchase taxes
c. Recoverable purchase taxes
d. Import duties on shipping of inventory inward
34. Which of the following costs should be included in inventory valuation?
a. Administrative costs c. Storage costs relating to finish goods
b. Abnormal material usage d. Fixed production overheads
35. Which classification of the cash flow arising from the proceeds from an earthquake disaster settlement
would be most appropriate?
a. Cash flows from operating activities d. Does not appear in the statement of cash
b. Cash flows from investing activities flows
c. Cash flows from financing activities
36. Which of the following should be treated as a change in accounting policy?
I. A new accounting policy of capitalizing development costs as a project has become eligible for
capitalization for the first time.
II. A new policy resulting from the requirements of a new PFRS.
III. To provide more relevant information items of property, plant and equipment are now being
measured at fair value, whereas they had previously been measured at cost.
IV. An entity engaging in construction contract for the first time needs an accounting policy to deal with
this.
a. I, II, III and IV c. II and III only
b. I, and II only d. I and IV only
37. Which of the following statements in relation to deferred tax is true?
I. Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of
taxable temporary differences.
II. Deferred tax assets are the amounts of income taxes recoverable in future periods in respect of
deductible permanent differences.
a. I only c.Both I and II
b. II only d. Neither I nor II
38. Which term best describes the removal of an asset from the statement of financial position?
a. De recognition c. Write off
b. Impairment d. Depreciation
39. Which of the following statements is correct?
a. Assets are depreciated even if their fair value exceeds carrying amount
b. Land and buildings are not accounted separately when acquired together
c. A noncurrent asset acquired as the result of an exchange of assets is not recognized
d. A gain .on disposal of a noncurrent asset is classified as revenue
40. Which should not be capitalized a cost of properly plant and equipment?
a. Cost of excess materials resulting from a purchasing error
b. Cost of testing whether the asset works correctly
c. Initial delivery and handling cost
d. Cost of preparing the site for installation
41. Which should be included in the cost of an item of properly plant and equipment?
a. Initial operating losses while demand c. Costs of training staff on the new asset
builds up d. Installation and assembly costs
b. Apportioned general overhead cost
42. Which of the following conditions does not apply to the recognition of revenue for transactions involving
the rendering of services?
a. The amount of revenue can be measured reliably
b. It is probable that payment for the services shall be received by the relinquished
c. Ownership has been transferred to the buyer
d. Significant risks and rewards of ownership have been transferred from the seller to the buyer
43. Which must not be satisfied before revenue from the sale of goods should be recognized?
a. Revenue can be reliably measured
b. Managerial control over the goods sold has been relinquished
c. Ownership has been transferred to the buyer
d. Significant risks and rewards of ownership has been transferred from the seller to the buyer
44. Which of the following statements best describes other lone-term employee benefits”?
a. Benefits not falling due wholly within twelve months of the end of the period in which the service is
service is rendered
b. Benefits which fall due within twelve months often end of the period in which the service is rendered
c. Benefits payable as a result of an entity’s decision to end an employee’s employment before the
normal retirement date
d. Benefits which are payable after completion of employment
45. Which of the following statements is incorrect in relation to government grant?
a. Any adjustment needed when a government grant becomes repayable is accounted for as a change
in accounting estimate.
b. In respect of loans from the government at an interests rate 0% an imputed interest charge is
required.
c. Where condition apply to a government grant it should only be recognized when there is reasonable
assurance that the conditions will be met.
d. A government grant that becomes receivable as compensation for losses already incurred should be
recognized as income of the period in which it becomes receivable.
46. Which statement about the capitalization of borrowing costs is true?
a. If Funds come from general borrowings the amount to the capitalized is based on the weighted
average cost of borrowing.
b. Capitalization always continues until the asset is brought into use.
c. Capitalization always commences as soon as expenditure f the asset is incurred.
d. Capitalization always commences as soon as interest on relevant borrowing is being incurred.
47. Which of the following treatments is required for borrowing costs incurred that are directly attributable to
the construction of a qualifying asset?
I. Recognize as an expense in the period incurred.
II. Capitalize as a part of the cost of the asset.
a. I only c. Either I or II
48. An entity completely the following transactions in the current year:
I. Sold a car to the uncle of the entity’s finance director.
II. Sold goods to another entity owned by the daughter of the entity’s managing director.
Which transaction would require disclosure in the financial statements of the entity?
a. Neither I nor II c. II only
b. I only d. Both I and II
49. Which of the following is not a related party of an entity?

a. A shareholder of the entity owning 30% of the ordinary share capital
b. An entity providing banking facilities to the entity
c. An associate of the entity
d. Key management personnel of the entity
50. Which of the following statements about dividends is true?
I. Dividends in respect of ordinary shares are debited directly in equity.
II. Dividends in respect of redeemable preferences shares are debited directly in equity.
a. I only c.Both I and II
51. Which of the following statements with respect to interim reporting is true?
I. It is necessary to count inventories in full at the end of each interim accounting period.
II. The net realizable value is determined by reference to selling prices at the interim date.
a. I only c. Both I and II
52. Which of the following terms best describes the higher of fair value less cost of disposal and value in
use?
a. Recoverable amount c. Depreciable amount
b. Revalued amount d. Carrying amount
53. Which of the following statements in relation to a contingent liability is true?
I. An obligation as a result of the entity creating a valid expectation that it will discharge its
responsibilities is a contingent liability.
II. A present obligation that arises from past events but cannot be reliably measured is a contingent
liability.
54. A provision should be recognized for which of the following?
a. Future operating losses
b. Obligations under insurance contracts
c. Reductions in fair value of financial instruments
d. Obligations for plant decommissioning costs
55. Which of the following is not relevant in determining the useful life of an intangible asset?
a. Obsolescence c. The expected usage of the asset
b. Expected action of competitor d. The residual value of the asset
56. A brand name that was acquired separately should initially be recognized at
a. Recoverable amount c. Fair value
b. Either cost or fair value at the choice of d. Cost
the acquirer
57. Which of the following statements is true?
I. Intangible assets cannot be treated as having an indefinite useful life.
II. Intangible assets with a finite useful life should be measured at cost and tested annually for
impairment.
58. Which of the following additional disclosures must be made when an entity chooses the cost model as
its accounting policy for investment properly?
a. The fair value of the property c. The value in use of the property
b. The present value of the property d. The net realizable value of the property
59. Which of the following disclosures should be made when the fair value model has been adopted for
investment property?
a. Depreciation method used c. Useful life or depreciation rate used
b. The amount of impairment loss d. Net gains or losses from fair value
recognized adjustments
60. Where should changes in the fair value of a herd of cattle be recognized in the financial statements?
a. In profit or loss c .In profit or loss or other comprehensive
b. In other comprehensive income income
d. In the statement of cash flows
61. Which of the following reports is not a component of the financial statement?
a. Statement of financial position c. Director’s report
b. Statement of changes in equity d. Notes to the financial statements
62. Which of the following information is not specifically a required disclosure?

a. Name of the reporting entity or other means of identification, and any change in that information from
the previous year.
b. Names of major shareholders of the entity.
c. Level of rounding used in presenting the financial statements.
d. Whether the financial statements cover the individual entity or a ground of entities.
63. Which one of the following is not required to be presented as minimum information on the face of the
statement of financial position?
a. Investment property c. Biological assets
b. Investments accounted under the equity d. Contingent liability
method
64. Inventories are defined by all of the following except
a. Used in the production or supply of goods and services for administrative purposes.
b. Held for sale in the ordinary course of business.
c. In the process of production for such sale.
d. In the form of materials or supplies to be consumed in the production process or the rendering of
services.
65. How should an entity disclose the dividends received in the statement of cash flows?
a. Operating cash inflow
b. Either as operating cash inflow or as financing cash inflow
c. Either as operating cash inflow or as financing cash inflow
d. As an adjustment in the “operating activities” section
66. At the end of the current reporting period an entity carried a receivable from a major customer. The
customer declared bankruptcy after the end of reporting period but prior to authorization of financial
statements. How should the entity account for this event?
a. Disclose in the notes the fact that the customer declared bankruptcy.
b. Make a provision for this post-reporting period event
c. Ignore the event
d. Reverse the sale pertaining to the receivable and treat it as an error.
67. The initial operating losses should be
a. Deferred and authorized over a reasonable period of time.
b. Expensed and charged to the income statement.
c. Capitalized as part of the cost of plant as a directly attributable cost.
d. Charged to retain earning.
68. An entity owns a fleet of cars and ships. The entity decided to revalue its property, plant and
equipment. Which option should be selected in relation to the revaluation?
a. Revalue only one-half of each class of property, plant and equipment.
b. Revalue an entire class of property, plant and equipment.
c. Revalue one ship at a time as it is easier than revaluing all ships altogether.
d. Since assets are being revalue regularly, here is no need to depreciate.
69. The classification of a lease as either an operating or finance lease is based on
a. The length of the lease.
b. The transfer of the risks and rewards of ownership.
c. The minimum lease payments being at least 50% of the fair value.
d. The economic life of the asset.
70. The accounting concept that is principally used to classify leases into operating and finance is
a. Substance over form c. Neutrality
b. Prudence d. Completeness
71. Which situation would prima facie lead to a lease being classified as an operating lease?
a. Transfer of ownership to the lessee at the end of the lease term.
b. Option to purchase at a value below the fair value of the asset.
c. The lease term is for a major part of the asset’s life.
d. The present value of the minimum lease payments is 50% of the fair value of the asset.
72. Revenue from an artistic performance is recognized once
a. The audience register for the event online c. Cash has been received from the ticket
b. The tickets for the concert are sold. sales.
d. The event takes place.
73. In the case of a nonmonetary grant, which of the following is prescribed?
a. Record the asset at replacement cost and the grant at a nominal value.
b. Record the grant at a value estimate by management.
c. Record both the grant and the asset at fair value of the nonmonetary asset.
d. Record only the asset at fair value and not recognize the fair value of the grant.
74. Which of the following should not be considered a “qualifying asset” in relation to capitalization of borrowing
cost?
a. A power generation plant that normally takes two years to construct.
b. An expensive private jet that can be purchased from a local vendor.
c. A toll bridge that usually takes more than a year to build.
d. A ship that normally takes one to two years to complete.
75. The equity method is not required to be applied when the associate has been acquired and held with a view
to its disposal within what time period?
a. Six months c. Two years
b. Twelve months d. In the near future
76. How is goodwill arising on the acquisition of an associate dealt with in the financial statements?
a. It is amortized.
b. It is impairment tested individually.
c. It is written off against profit or loss.
d. Good it’s not recognized separately within the carrying amount of the investment.
77. Which of the following assets or liabilities should be considered nonmonetary?
a. Trade receivables c. Accrued expense and other payables
b. Deferred tax liabilities d. Taxes payable
78. Which of the following assets is not a financial asset?
a. Cash
b. An equity instrument of other entity
c. A contract that may or will be settled in the entity’s own instrument and is not classified as an equity
instrument of the period.
d. Prepaid expense
79. Earnings per share are calculated before accounting for which items?
a. Preference dividend for the period c. Taxation
b. Ordinary dividend d. Minority
80. If a bonus issue occurs between the year-end and the date financial statements are authorized
a. EPS both for the current and the previous year are adjusted.
b. EPS for the current year only is adjusted.
c. No adjustment is made to EPS.
d. Dilute EPS only is adjusted.
81. Publicly traded entities are encourage to provide interim financial reports
a. At least at the half year and within 60 days of the end of interim period.
b. Within a month of the half year-end.
c. On a quarterly basis.
d. Whenever the entity wishes.
82. If an entity does not prepare interim financial reports
a. The year-end financial statements are deemed not to comply with FRRS.
b. The year-end financial statements compliance with PFRS is not affected.
c. The year-end financial statements will not be acceptable under local legislation.
d. Interim financial reports should be included in the year-end financial statements.
83. Value in use is
a. The market value.
b. The discounted present value of future cash flows arising from use the asset and from its disposal.
c. The higher of fair value the asset is recognized in the statement of financial position.
d. The amount at which the asset is recognized in the statement of financial position.
84. Estimate of future cash flows in determining value in use normally would cover projections over maximum of
a. Five years c. Fifteen years
b. Ten years d. Twenty years
85. Which of the following cash flows should not be included in calculating value in use?
a. Cash flows from disposal.
b. Income tax payment.
c. Cash flows from the sale of assets produced by the asset.
d. Cash outflows incurred to generate the cash inflows the continuing use of the asset.
86. A cash-generating unit is
a. The smallest business segment.
b. Any grouping of assets that generates cash flows.
c. Any group of assets that are reported separately to management.
d. The smallest group of assets that generates independent cash flows from continuing use.
87. When allocating impairment loss such a loss should reduce the carrying amount of which asset first?
a. Property, plant, and equipment c. Goodwill
b. Intangible assets d. Current assets
88. An investment property should be measured initially at

a. Cost
b. Cost less accumulated impairment losses.
c. Depreciable cost less accumulated impairment losses.
d. Fair value less accumulated impairment losses.
89. A gain arising from change in fair value of an investment property for which an entity has opted to use the
fair value model is recognized in
a. Net profit for the year c. Valuation reverses in the shareholders
b. General reverses in the shareholders equity equity
d. Retained earning
90. Generally speaking biological assets relating to agricultural activity should be measured using
a. Historical cost c. A fair value approach
b .Historical cost less depreciation less d. Net realizable value
impairment
91. Where there is a production cycle of more than one year for a biological asset, separate disclosure is
encouraged for
a. Physical change only c. Total change in value
b. Price change only d. Physical change and price change
92. How should the income from discontinued operation be presented in the income statement?
a. The entity should disclose a single amount on the face of the income statement below the income from
continuing operation.
b. The amounts from discontinued operation should be broken down over each category of revenue and
expense.
c. Discontinued operation should be shown as a movement on retained earning.
d. discontinued operation should be shown as a line item after gross profit.
93. Which of the following criteria does not have be met in order for an operation to be classified as
discontinued?
a. The operation should represent a separate major line of business or geographical area.
b. The operation is part of a single plan to dispose of a separate major line of business or geographical.
c. The operation is a subsidiary acquired exclusively with a view to resale.
d. The operation must be sold within three months of the year-end.
94. How should the assets and liabilities of a disposal group classified as held for sale be shown in the
statement of financial position?
a. The assets and liabilities should be offset and presented as a single amount.
b. The assets of the disposal group should be shown separately from other assets and the liabilities should
be shown separately from other liabilities.
c. The assets and liabilities of the disposal group should not be presented.
d. There should be no separate disclosure of assets and liabilities that form part of a disposal group.
95. Which is not a characteristic of the “full cost” method of accounting in the oil and gas industry?
a. All costs incurred in acquiring exploring and developing within a defined cost center are capitalization and
amortized.
b. Costs are capitalized even if a specific project in a cost center was a failure.
c. Costs of unsuccessful acquisition and exploration activities are charged to expense.
d. Exploration and evaluation asset is classified either as tangible asset or an intangible asset according to
the nature of the asset.
96. Which expenditures would never qualify as an exploration and evaluation asset?
a. Expenditures for acquisition of right to explore.
b. Expenditures for exploratory drilling.
c. Expenditures related to the development of mineral resources.
d. Expenditures for activities in relation to evaluating the technical feasibility and commercial viability of
extracting a mineral resource.
97. The accounting for a fair value hedge records the derivative at
a. Amortized cost c. Fair value
b. Carrying amount d. Historical cost
98. Which of the following represents the total number of shares that a corporation may issue under the terms of
its charter?
a. Authorized shares c. Unissued shares
b. Issued shares d. Outstanding shares
99. Shares that have a fixed per-share amount printed on each share certified are called
a. Stated value shares c. Uniform value shares
b. Fixed value shares d. Par value shares
100.Cash dividends are paid on the basis of the number of shares
a. Authorized
b. Issued
c. Outstanding
d. Outstanding less the number of treasury shares


Tel. No.: (033) 320-2728; 09106547262
CERTIFIED PUBLIC ACCOUNTANT Licensure Examination SET B
AUDITING THEORY
your answer.
4. AVOID ERASURES.
INSTRUCTIONS:
2. Write the subject title “AUDITING THEORY” on the box provided.
__________________________________________________________________________________________
1. An Exception in a test of control provides only an indication of the likelihood of monetary misstatements in the
financial statements because test of controls do not reveal whether monetary misstatements have actually
occurred.
An Exception in a substantive test of transactions provides an indication of the likelihood of monetary

misstatements in the financial statements because substantive tests of transaction do reveal whether
monetary misstatements have actually occurred.
A. True; False C. False; True

B. false; False D. True; True
2. Which of the following services provides the lowest level of assurance on a financial statement?
A. An audit
B. A review
C. Neither service provides assurance on financial statements.
D. Each service provides the same level of assurance on financial statements.
3. Which one of the following is more difficult to evaluate objectively?
A. Presentation of financial statements in accordance with PFRS.
B. Compliance with government regulation.
C. Efficiency and effectiveness of operations.
D. All three of the above are equally difficult.
4. If the auditor believes that the financial statements are not fairy state or is unable to reach a conclusion
because of insufficient evidence, the auditor
A. Should withdraw from the engagement.
B. Should request an increase in audit fees so that more resources can be used to conduct the audit.
C. Has the responsibility of notifying financial statement users through the auditor’s report.
D. Should notify regulators of the circumstances.
5. In comparing management fraud with employee fraud, the auditor’s risk of falling to discover the fraud is
A. Greater for management fraud because mangers are inherently more deceptive than employees.
B. Greater for management fraud because of management’s ability to override exiting internal controls.
C. Greater for employee fraud because of the higher crime rate among blue collar workers.
D. Greater for employee fraud because of the larger number of employees in the organization.
6. Which of the following statements best describe the auditor’s responsibility regarding the detection of fraud?
A. The auditor is responsible for the failure to detect fraud only when such failure clearly results from non-
performance of audit procedures specifically described in the engagement letter.
B. The auditor is required to provide reasonable assurance that the financial statements are free of the both
material errors and fraud.
C. The auditor may extend auditing procedures to actively search for evidence of fraud where examination
indicates that fraud may exits.
D. The auditor is responsible for the failure to detect fraud only when an unmodified opinion is issued.
7. Which of the following statements is not correct?

A. It is possible to vary the sample size from one unit to 100% of the items in the population.
B. The decision of how many items to test should not be influenced by the increase costs of performing
the additional tests.
C. The decision of how many items to test must be made by the auditor for each audit procedure.
D. The sample size for any given procedure is likely to vary from audit to audit.
8. For audit evidence to be compelling to the auditor it must be sufficient and appropriate.
Which statement below is not correct regarding the appropriateness of audit evidence?
A. The more effective the internal control system, the more assurance it provides the auditor about the
reliability of financial reporting by the client.
B. An auditor’s opinion to be economically useful and profitable to the auditing firm needs to be formed
within a reasonable time and based on evidence obtain that assures profits for the auditing firm.
C. Evidence obtained from independent sources outside the entity is generally more reliable than
evidence secured solely within the entity.
D. The independent auditor’s direct personal knowledge, obtained through inquiry, observation and
inspection, is generally more persuasive than information obtained indirectly.
9. Which of the following is not a correct use of the terminology in relation to audit evidence?
A. Evidence obtained from an independent source outside the client organization is more reliable than
obtained from within.
B. Documentary evidence is more reliable when it is received by the auditor indirectly rather than
directly.
C. Documents that originate outside the company are considered more reliable than those that
originate within the client’s organization.
D. External evidence, such as communications form banks is generally regarded as more reliable than
answers obtained from inquires of the client.
10. When making decisions about evidence for a given audit the auditor’s goal is to obtain a sufficient amount
of timely reliable evidence that is relevant to the information being verified. In addition the goal of audit
efficiency is to gather and evaluate the information
A. No matter the cost involved in obtaining such evidence.
B. Even if cost is irrelevant to the auditor because they bill the client for costs incurred.
C. At the lowest possible total cost.
D. At the cost suggested in the engagement letter.
11. The auditor is concerned that a client is falling to bill customers for shipments. An audit procedure that
would gather relevant evidence would be to
A. Select a sample of duplicate sales invoices and trace each to related shipping documents.
B. Trace a sample of shipping documents to related duplicate sales invoices.
C. Trace a sample of sales Journal entries to the Accounts Receivable subsidiary ledger.
D. Compare the total of the Schedule of Accounts Receivable with the balance of the Accounts
Receivable account in the general ledger.
12. The purpose of an engagement letter is to
A. Document the CPA firm’s responsibility to external users of the audited financial statements.
B. Document the term of the engagement.
C. Notify the audit staff of an upcoming engagement so that personnel scheduling can be facilitated.
D. Emphasize management’s responsibility for approving the audit program.
13. The predecessor auditor is required to respond to the request of the successor auditor for information, but
the response can be limited to stating that no information will be provided when
A. The predecessor auditor has poor relation with the successor auditor.
B. The client is dissatisfied with the predecessor’s work.
C. There are actual or potential legal problems between the client and the predecessor.
D. The predecessor believes that the client lacks integrity.
14. The audit team gather information about a new client’s business and industry in order to obtain
A. An understanding often client’s internal control system for financial reporting.
B. An understanding of how economic events and transactions have an effect on the company’s
financial statements.
C. Information about engagement risk.
D. Information regarding whether the company is engaging in financial statement fraud.
15. During audit planning, the auditor uses analytical procedures primarily to
A. Identify weakness in internal control.
B. Determine if the company’s financial statements appears reasonable and are free of material
misstatement.
C. Determine the correspondence of the company’s financial statements to the valuation and accuracy
audit objectives.
D. Understand the client’s business and industry and to indicate possible misstatements.

16. When performing planning analytical procedures for a client, the auditor detected that the gross profit
percentage had declined by 50% from the previous year to the year currently under audit. The auditor
should
A. Investigate the possibility the client may have made an error in their cost of goods sold computation.
B. Asset management in developing greater cost efficiencies in their product line.
C. Prepare a going concern opinion for the client.
D. Advise the client to have extensive disclosure to alleviate investor concern.
17. The auditor’s primary purpose in auditing the client’s system of internal control over financial reporting is
A. To prevent fraudulent financial statements from being issued to the public.
B. To evaluate the effectiveness of the company’s internal control over all relevant assertions in the
financial statements.
C. To report to management that the internal controls are effective in preventing misstatements from
appearing on the financial statements.
D. To efficiency conduct the audit of financial statements.
18. Which of the following factors may increase risks to an organization?
A B C D
 Geographic dispersion of company operation Yes No Yes No
 Presence of new information technologies Yes No Yes No
19. Which of the following hest describes the purpose of control activities?
A. The actions, policies and procedures that reflect the overall attitude management.
B. The identification and analysis of risks relevant to the preparation of financial statements.
C. The policies and procedures that help ensure that necessary actions are taken to address risk to the
achievement of the entity’s objectives.
D. Activities that deal with ongoing assessment of the quality of internal control by management.
20. A company is concerned with the theft of cash after the sale has been recorded. One way in which
fraudsters conceal the theft is by a process called “lapping”. Which of the following best describes
lapping?
A. Reduce the customer’s account by recording a sales return.
B. Write off the customer’s account
C. Reduce the customer’s account by recording a sales allowance.
D. Apply the payment from another customer to the customer’s account.
21. An important characteristic of IT is uniformity of processing. Therefore, a risk exits that
A. Auditors will not be able to access data quickly.
B. Auditors will not be able to determine if data is processed consistently.
C. Erroneous processing can result in the accumulation of a great number of misstatements in a short
period of time.
D. All of the above.
22. Which of the following statements is not true?
A. Analytical procedures emphasize the overall reasonableness of transactions and balances.
B. Test of controls are concerned with evaluating whether controls are sufficiently effective to justify
control risk and thereby reducing analytical procedures.
C. Substantive tests of transactions emphasize the verification of transactions recorded in the journals
and then posted in the general ledger.
D. Tests of details of balances emphasize the ending balances in the general ledger.
23. An examination of part of an organization’s procedures and methods for the purpose of evaluating
efficiency and effectiveness is what type of audit?
A. Production audit. C. Compliance audit.
B. Financial statement audit. D. Operation audit.
24. In many audits of the sales transactions, subtractive tests of transactions can be reduced in determining the
completeness objective because
A. Understatements of assets and income are a greater concern than overstatements.
B. Overstatements of assets and income are a greater concern than understatements.
C. It doesn’t matter if income is understated because the savings on income tax offsets the reduced revenue
and net income is correct.
D. The unrecorded sales cause a reduction of accounts receivable; therefore, the ratio of the two financial
statements will not be misleading.
25. To determine if a sample is truly representative of the population, an auditor would be required to
A. Conduct multiple samples of the same population.
B Never use sampling because of the expense involved.
C. Audit the entire population.
D. Use systemic sample selection.

26. The most important test of details of balances to determine the existence of recorded accounts receivable
is
A. Tracing detail of sales invoices to shipping documents.
B. Tracing the credits in accounts receivable to bank deposit.
C. Tracing sales returns entries to credit memos issued and receiving room reports.
D. The confirmation of customers balance.
27. It is common to use combination of positive and negative confirmations by sending the latter to accounts
with larger balances and the former to those with small balances.
When sending confirmations during most audits of accounts receivable, the emphasis is often on
confirming larger and older balances.
A. True; True C. True; False
B. false; false D. False; True
28. Which of the following is the most effective control procedure to detect vouchers that were prepared for
the payment of good that were not received?
A. Count goods upon receipt in storeroom.
B. Match purchase order, receiving report, and vendor’s invoice for each voucher in accounts payable
department.
C. Compare goods received with goods requisitioned in receiving department.
D. Verify vouchers for accuracy and approval in internal audit department.
29. Internal controls that are likely to prevent the client from including as a business expense those
transactions that primarily benefit management or other employees rather than the entity being audited
satisfy the control objective that
A. Acquisitions are correctly valued. D. recorded acquisition are for goods or
B. Existing acquisitions are recorded. services received.
C. Acquisitions are correctly classified.
30. A CPA learns that his client has paid a vendor twice for the same shipment, once based upon the original
invoice and once based upon the monthly statement. A control procedure that should have prevented this
duplicate payment is
A. Attachment of the receiving report to the disbursement report.
B. Prenumbering of disbursement vouchers.
C. Use of a limit or reasonableness test.
D. Prenumbering of receiving reports.
31. If the client fails to record disposals of property, plant, and equipment, both the original cost of the asset
account and the net book value will be incorrect. What will the effect be of this misstatement on the
original cost and the book value?
A. both will be overstated indefinitely.
B. The original cost will overstated indefinitely, and the net book value will be overstated until the asset
is fully depreciated.
C. The original cost will be overstated indefinitely and the net book value will be understated
indefinitely.
D. The original cost will be overstated indefinitely and the net book value will be understated until the
asset is fully depreciated.
32. The nature, extent, and timing of substantive tests of payroll transactions vary depending, In part, on
assessed control risk.
“Physical control over assets” is not a type of control that is applicable to the payroll cycle.
A. True; False C. True; True
B. False; True D. False; False
33. Which of the following controls would be appropriate regarding the release of materials from a stockroom?
A. Production employees request materials be delivered to their work areas as they need them.
B. Stockroom employees deliver materials to work areas throughout the day to maintain acceptable
levels
of safety stock-no written records are maintained.
C. Production employees submit approved requisition forms to the stockroom for material needed.
D. Production employees in needed of material should personally pick up needed materials from the
Stockroom.
34. If the auditor concludes that physical controls over inventory are so inadequate that the inventory will be
difficult to count the auditor should ordinary
A. Withdraw from the engagement.
B. Issue a qualified audit report.
C. Conduct expanded observation tests of physical inventory.
D. Hire an expert to assist the auditor.
35. You are gathering evidence for the audit objective that existing inventory items are included in the
inventory listing schedule. The audit procedure that would provide you with the best evidence to confirm
this objective is
A. trace from inventory tags to the inventory listing schedule and make sure the inventory tag is
included.
B. Trace the inventory totals to the general ledgers.
C. Perform tests of lower-cost-or-net realizable value.
D. Account for unused tags shown in the auditor’s documentation to make sure no tags have been
added.
36. Which of the following is not an objective of the auditor’s examination of notes payable?
A. To determine whether internal controls adequate.
B. To determine whether client’s financing arrangements are effective and efficient.
C. To determine whether transactions regarding the principal and interest of notes are properly
authorized.
D. To determine whether the liability for notes and related interest expense and accrued liabilities are
properly stated.
37. Which of the following errors would be least likely to be discovered during the tests of the bank
reconciliation?
A. Payment was made to an employee for more hours than he worked.
B. Cash received by the client subsequent to the balance sheet date was recorded as cash receipts in
the current year.
C. Payments on notes payable debited directly to the bank balance by the bank were not entered in the
client’s records.
D. Deposits were recorded in the cash receipts records near the end of the year, deposited in the bank,
and were included in the bank reconciliation as a deposit in transit.
38. A major consideration in the audit of the general cash balance is the possibility of fraud.
The auditor must extend his or her procedures in the audit year-end cash to determine the possibility of
a material fraud when there are
A. Large cash balances at the end of the year.
B. Large cash receipts and disbursements during the year.
C. No imprest accounts used for payroll.
D. Inadequate internal controls.
39. Refusal by a client to prepare and sign the representation letter would require the auditor to issue
A. Qualified opinion or a disclaimer. D. Unmodified opinion with an emphasis of
B. Adverse opinion or a disclaimer. matter paragraph.
C. Qualified or an adverse opinion.
40. Assurance provided by a review is substantially less than an audit. Which of the following statements is
true regarding these services?
A. A review requires more substantive evidence than an audit.
B. An audit requires less evidence related to internal control than review.
C. A review requires less evidence than an audit.
D. None of the above statements is true.
41. Which of the following groups could not be involved in an operational audit?
A. CPA firms. D. None is correct; that is, all of the above
B. Government auditors. could be involved.
C. Internal auditors.
42. Which of the following conditions most likely would pose the greatest risk in accepting a new audit
engagement?
A. Staff will need to be rescheduled to cover this new client.
B. There will be a client-imposed scope limitation.
C. The firm will have to hire an expert in one audit area.
D. the client’s financial reporting system has been in place for 10 years.
43. Audit plans should be designed so that
A. Most of the required procedures can be performed as interim work.
B. Inherent risk is assessed at a sufficiently low level.
C. The auditor can make constructive suggestion to management.
D. The audit evidence gathered supports the auditor’s conclusion.
44. When expressing an unmodified opinion, the auditor who evaluates the audit findings should be satisfied
that the
A. Amount of known misstatement is documented in the management representation letter.
B. Estimate of the total likely misstatement is less than a material amount.
C. Amount of known misstatement is acknowledgement and recorded by the client.
D. estimate of the total likely misstatement includes the adjusting entries already recorded by the client.
45. In assessing the objectivity of internal auditors, an independent auditor should
A. Evaluate the quality control program in effect for the internal auditors.
B. Examine documentary evidence of the work performed by the internal auditors.
C. Test a sample of the transactions and balances that the internal auditors examined.
D. Determine the organization level to which the internal auditor report.
46. Reyes Merchandising Co. Maintains a staff of three full-time internal auditors. If the work of the internal
auditors is relevant to the audit, it is efficient to consider how that work may affect the audit, and the
internal auditors are found to be competent and objective, the independent auditor most likely will
A. Nevertheless need to make direct tests of assertion about material financial statement amounts for
which the risk of material misstatement is high.
B. Decrease the extent of the tests of control needed to restrict detection risk to the acceptable level.
C. Increase the extent of the procedures needed to reduce control risk to an acceptable level.
D. Not evaluate and test the work performed by the internal auditors.
47. The auditor’s evaluation of the reasonableness of accounting estimates
A. Should be in the context of individual transactions.
B. Consider that management bases its judgement on both subjective and objective factors,
C. Will be unfavourable if the estimate financial statements are based on assumption about future
events and transactions.
D. should be based on a attitude of conservatism.
48. A client who recently installed a new accounts payable system employees a user identification code (UIC)
and a separate password. Each UIC is a person’s name, and the individuals passwords at initial log-in nor
do passwords ever expire. Which of the following statements does not reflect
a limitation of the client’s computer-access control?
A. Employees can easily guess fellow employees passwords.
B. Employees are not required to change passwords.
C. Employees can circumvent procedures to separate duties.
D. Employees are not required to take regular vacations.
49. A CPA is gaining an understanding of the internal controls for a client that sells garden products using an
internet site. Which of the following is not likely to be found on the client’s organizational chart?
A. The sales order department. C. The warehouse.
B. The shipping department. D. Computer processing.
50. Which of the following describes a weakness in accounts payable procedures?
A. The accounts payable clerk files invoices and supporting documentation after payment.
B. The accounts payable clerk manually verifies arithmetic on the vendor invoice.
C. The accounts payable system compares the receiving report to the vendor invoice.
D. The accounts payable manager issues purchase orders.
51. The auditor should perform test of controls when
A. Substantive procedures alone do not provide sufficient appropriate audit evidence at the relevant
assertion level.
B. Tests of details and substantive analytical procedures provide sufficient appropriate audit evidence
to support the assertion being evaluated.
C. The auditor is not able to obtain an understanding of internal controls.
D. The owner-manager performs virtually all the functions of internal control.
52. An auditor who has confirmed accounts receivable may discover that the sales journal was held open past
year end if
A. Positive confirmations sent o debtors are not returned.
B. Negative confirmations sent to debtors are not returned.
C. Most of the returned negative confirmations indicate that the debtor owes a larger balance than the
amount being confirmed.
D. most of the returned positive confirmations indicate that the debtor owes a smaller balance than the
amount being confirmed.
53. Which of the following procedures would best detect a liability omission by management?
A. Inquiry of senior support staff and recently departed employees.
B. Review and check mathematical accuracy of financial statements.
C. Review articles of incorporation and corporate bylaws.
D. Review purchase contracts and other legal documents.
54. The risk of material misstatement refers to
A. Control risk and acceptable audit risk.
B. Inherent risk.
C. The combination of inherent risk and control risk.
D. Inherent risk and audit risk.

55. In a financial statement audit, inherent risk is evaluated to help an auditor assess which of the following?
A. the internal audit department’s objectivity in reporting a material misstatement of a financial
statement assertion it detects to the audit committee.
B. The risk the internal control system will not detect a material misstatement of a financial statement of
a financial statement assertion.
C. The risk that the audit procedures implemented will not detect a material misstatement of a financial
statement assertion.
D. The susceptibility of a financial statement assertion to a material misstatement assuming there are
no related controls.
56. Auditors begin their assessments of inherent risk during audit planning. Which of the following would not
help in assessing inherent risk during the planning phase?
A. Obtaining client’s agreement on the engagement letter.
B. Obtaining knowledge about the client’s business and industry.
C. Touring the client’s plant and offices.
D. Identifying related parties.
57. As the acceptable audit risk is decreased, the likely cost of conducting an audit increases.
Acceptable audit risk is measure of the auditor’s willingness to accept that the financial statements do
not contain material misstatements after the audit is completed and a qualified audit report has been
issued.
A. True; True C. False; False
B. True; False D. False; True
58. Related party transactions may be indicated when another company
A. Subsidizes certain operating expense of the company.
B. Purchases its securities at their fair value.
C. loans to company at market rates.
D. Has had a distributor relationship with the company for 10 years.
59. An auditor should examine minutes of the board of directors’ meetings
A. Through the date of the financial C. Only at the beginning of the audit.
statements. D. On a test basis.
B. Through the date of the audit report.
60. If the auditor were responsible for making certain that all of management’s assertions is the financial
statements were absolutely correct
A. Bankrupts could no longer occur.
B. Bankrupts would be reduced to a very small number.
C. Audits would not be much easier to complete.
D. Audits would not be economically practical.
61. Which of the following statements is true?
A. Auditors have generally found that the most effective and efficiently way to conduct an audit is to
obtain some assurance for each class of transactions and for the ending balance of the related
account.
B. Management’s assertion follow and are closely related to the audit objectives.
C. The auditor’s primary responsibility is to find and disclose fraudulent management assertions.
D. Assertions about presentation and disclosure deal with whether the accounts have been included in
the financial statements at appropriate amounts.
62. Which of the following statements about the existence and completeness assertions is not true?
A. The existence and completeness assertions emphasize different concerns.
B. Existence deals with overstatements and completeness deals with understatements.
C. Existence deals with understatements and completeness deals with overstatements.
D. The completeness assertion deals with unrecorded transactions.
63. In testing for cutoff, the objective is to determine
A. Whether all of the current period’s transactions are recorded.
B. Whether transactions are recorded in the correct accounting period.
C. The proper cutoff between capitalizing and expensing expenditures.
D. The proper cutoff between disclosing items in notes to the financial statements or in accounts
balances.
64. Determine which of the following is most correct regarding the reliability of audit evidence?
A. Information that is indirectly obtained from external sources is the most reliable audit evidence.
B. Reliability of audit evidence is dependent upon the evidence being convincing.
C. Reliability of evidence refers to the amount of evidence obtained.
D. An effective control system provides more reliable audit evidence.

65. When the auditor develops supporting evidence for amounts posted to account balances with
documentary evidence, that process is called
A. Inquiry. C. Vouching.
B. Confirmation. D. Physical examination.
66. Narratives, flowcharts, and internal control questionnaires are three common methods of
A. Documenting the auditors understanding of internal controls.
B. Designing the audit manual and procedures.
C. Documenting the auditor’s understanding of a client’s organization structure.
D. Testing the internal controls.
67. Who is most likely to perpetrate fraudulent financial reporting?
A. Members of the board of directors. C. Management of the company.
B. Production employees. D. The internal auditors.
68. Which of the following is not a factor that relates to opportunities to misappropriate assets?
A. Inadequate internal controls over assets.
B. Presence of large amounts of cash on hand.
C. Inappropriate segregation of the duties or independent checks on performance.
D. Adverse relationships between management and employees.
69. A control that relates to all parts of the IT system is called a/an
A. General controls. C. Universal control.
B. Systems control. D. Applications control.
70. The auditor would design which of the following audits test to detect possible monetary errors in the
financial statement?
A. Controls tests. D. Test of operating effectiveness of
B. Analytical procedures. controls over revenue and cash.
C. Risk assessment procedures.
71. If inherent risk is increased to medium from low, test of details of balances can be reduced.
The extent of test of details of balances cannot be reduced when transaction-related audit objectives
have been satisfied by tests of controls or substantive tests of transactions.
A. True; False C. True; True
B. False; True D. False; False
72. A document that details what the auditor will do to gather sufficient, appropriate evidence is the
A. Audit strategy. C. Audit procedure
B. Audit program D. Audit risk model
73. Analytical procedures must be performed in
A. The planning and test of control stages.
B. Conjunction with tests of transactions and tests of details of balance.
C. The planning and completion stages.
D. The planning, test of control, and completion stages.
74. An auditor noted that the accounts receivable department is separate from other accounting activities.
Credit is approved by a separate credit department. Control accounts and subsidiary ledgers are balanced
monthly. Similarly, accounts are aged monthly. The accounts receivable manager writes off delinquent
accounts after 1 year, or sooner if a bankruptcy or other or other unusual circumstances are involved.
Credit memoranda are prenumbered and must correlate with receiving reports. Which of the following
areas could be viewed as an internal control weakness of the above organization?
A. Write-offs of delinquent accounts. C. Monthly aging of receivables.
B. Credit approvals. D. Handling of credit memos.
75. A purchasing agent places an order for inventory whenever a requisition is received from the warehouse.
The warehouse clerk issues requisitions based on predict physical counts because no perpetual records
are maintained. Numerous duplicate orders have been placed for goods previously ordered but not
received. To prevent this excess ordering, the firm should
A. Keep an adequate record of open purchase orders and review it before ordering.
B. Count goods in the warehouse less often.
C. Use prenumbered purchase orders.
D. Not use purchase requisition.
76. Negative confirmation of accounts receivable is less effective than positive confirmation of accounts
receivable because
A. A majority of recipients usually lack the willingness to respond objectively.
B. some recipients may report incorrect balances that require extensive follow-up.
C. The auditor cannot infer that all nonrespondents have verified their account information.
D. Negative confirmations do not produce evidence that is statistically quantifiable.

77. The refusal of a client’s lawyer to provide a representation on the legality of a particular act committed by
the client is ordinarily
A. Sufficient reason to issue a “Subject to” opinion.
B. Considered to be a scope limitation.
C. Insufficient reason to modify the auditor’s report because of the lawyer’s obligation of confidentiality.
D. Proper grounds to withdraw from the engagement.
78. Which of the following steps should an auditor perform first to determine the existence of related parties?
A. Examine invoices, contracts, and purchase orders.
B. Request a list of related parties from management.
C. Review the company’s business structure.
d. Review proxy and other materials filed with the SEC.
79. In planning the audit engagement, the auditor should consider each of the following except
A. The auditor’s independence.
B. Risk of material misstatement due to fraud.
C. Anticipated levels of audit risk and materiality.
D. The kind of opinion (unmodified, qualified, or adverse) that is likely to be expressed.
80. After obtaining a sufficient understanding of the entity, its environment, and internal control in an audit of
the financial statements, the auditor assesses.
A. The need to apply auditing standards.
B. Detection risk determining the acceptable level of inherent risk.
C. Detection risk and inherent risk to determine the acceptable level of control risk.
D. Control risk and inherent risk to determine the acceptable level of detection risk.



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MANAGEMENT ADVISORY SERVICES

your answer.
4. AVOID ERASURES.
INSTRUCTIONS:
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__________________________________________________________________________________________
USE THE FOLLOWING TO ANSWER QUESTION 1-4:

Little Star Products Company has a maximum productive capacity of 100,000 units per year. Normal
capacity is 90,000 units per year. Standard variable manufacturing cost are P20 per unit. Fixed factory
overhead is p450,000 per year. Variable selling expense is P10 per unit, and fixed selling expense is
P300,000 per year. The unit sales price is P50. The operating results for the year are as follows: sales,
80,000 units; and beginning inventory, 5,000 units. All variances are written off as additions (or
deductions from) the standard cost of goods sold.
1. What is the break-even point expressed in peso sales?
a. P1,125,000 c. P1,250,000
b. P1,875,000 d. P 37,500
2. How many units must be sold to earn a net income of P50,000 per year?
a. 2 million c. 40,000
b. 37,500 d. 25,000
3. Income under absorption costing is:
a. P900,000 c. P 925,000
b. P975,000 d. P1,975,000
4. Income uncer variable costing is:
a. P 25,000 c. P825,000
b. P875,000 d. P850,000
5. Product costs appear on the balance sheet:
a. only if goods are partially completed at the end of the period.
b. only if goods are unsold at the end of a period.
c. only if partially completed or are end of a period.
d. only in merchandising firms.
6. Data for A and Cost B are as follows:
Number of
Units Produced Unit Cost Total Cost
COST A
1 ? P10
10 ? P100
100 ? P1,000
1,000 ? P10,000
COST B
1 P5,000 ?
10 P500 ?
100 P50 ?
1,000 P5 ?

Which of the above best describes the behaviour of Cost A and B?
a. Cost A is fixed, Cost B is variable. c. Both Cost A and Cost B are variable.
b. Cost A is variable, Cost B is fixed. d. Both Cost A and Cost B are fixed.
7. Differential cost can:
a. Only be fixed costs. c. Be either fixed or variable.
b. Only be variable costs. d. Be incremental but not decremental.
8. If Carne Company were to sell 32,000 units, the total expected cost per units would be:
a. P75,000 c. P80,000
b. P78,000 d. P77,000
9. If Carne Company were to sell 40,000 units, the total expected cost per unit would be:
a. P2.50 c. P2.13
b. P2.25 d. P1.88
10. John Johnson decided to leave his former job where he earned P12 per hour to go to a new job where
he will earn P13 per hour. In the decision process, the former wage of P12 per hour would be
classified as a(n):
a. Sunk cost. c.Fixed cost.
b. Direct cost. d. Opportunity cost.
11. The Standards of Ethical Conduct for Management Accountants developed by the Institute of
Management Accountants contain a policy regarding confidentially that requires management
accountants to refrain from disclosing confidential information acquired in the course of their work:
a. Except when authorized by management.
b. In all situations.
c. Except when authorized by management, unless legally obligation to do so.
d. In all cases not prohibited by law.
12. During the month of January, direct labor cost totalled P17,000 and direct labor cost was 60% of prime
cost. If total manufacturing costs during January were P82,000 the manufacturing overhead was:
a. P11,333 c. P28,333
b. P53,667 d. P65,000
13. Samantha Galloway is a managerial accountant in the accounting department of Mustang Industries,
Inc. Samantha has just discovered evidence that some of the corporation’s marking mangers have
been wrongfully inflating their expense reports in order to obtain higher reimbursements from the firm .
According to the Institute of Management accountants’ Standards of Ethical Conduct, what should
Samantha do upon discovering this evidence?
a. notify the controller.
b. notify the marking managers involved.
c. notify the president of the corporation
d. Ignore the evidence because she is not part of the Marking Department.
14. Which of the following statements is true when referring to fixed cost?
a. Committed fixed costs arise from the annual decisions by management.
b. As volume increases, unit fixed cost and total fixed cost will change.
c. Fixed costs increase in total throughout the relevant range
d. Discretionary fixed costs can often be reduced to zero for short periods of the without seriously
impairing the long-run goals of the company
15. A P2.00 increase in a product’s variable expense per unit accompanied by a P2.00 Increase in its
selling price per unit will:
a. decrease the degree of operating leverage.
b. decrease the contribution margin.
c. have no effect on the break-even volume (In units).
d. have no effect on the contribution margin ratio.
16. The following information relates to the break-even point at Pezzo Corporation:
Sales pesos P120,000
Total fixed expenses P30,000
If Pezzo wants to generate net operating income of p12, 000, what will its sales pesos have to be?
a. P132,000 c. P168,000
b. P136,000 d. P176,000
17. The contribution approach income statement:

a. Organizes costs on a function basis.
b. Provides owners with more cash flows.
c. Is particularly helpful to the manager in planning and decision making.
d. Provides a gross margin figure from which selling and administrative expenses are deducted.

18. Minist company sells a single product at a selling price of p15.00 per unit. Last year, the company’s
sales revenue was P225, 000 and its net operating income was P18,000.
If fixed expenses totalled P72,000 for the year, the break-even point in unit sales was
a.15,000 c. 14,100
b.9,000 d.12,000
19. A single- product company prepares income statements using both absorption and variable costing
methods. Manufacturing overhead cost applied per unit produced under absorption costing in year 2
was the same as in year 1. The year 2 variable costing statement reported a profit whereas the year 2
absorption costing statement reported a loss. The difference in reported income could be explained by
units produced in year 2 being:
a. Less than units sold in year 2.
b. Less than the activity level used for allocating overhead to the product.
c. In excess of the activity level used for allocating overhead to the product.
d. In excess of units sold in year 2
20. Which of the following costs should not be included in product costs for internal management reports
that are used for decision-making?
a. Cost of unit-level activities. d. Costs of organization-sustaining
b. Costs of batch-level activities. activities
c. Costs of product-level activities.
21. If all sub-variances are calculated for labor, which of the following cannot be determined?
a. Labor rate variance. c. Reason for the labor variances.
b. Actual hours of labor used. d. Efficiency of the labor force.
22. Under variable costing:
a. Net operating income will tent to move up and down in response to changes in levels of
production.
b. Inventory costs will be lower than under absorption costing.
c. Net operating cost income will tend to vary inversely with production changes.
d. Net operating income will always be higher than under absorption costing.
23. Hettich Corporation uses an activity-based costing system with the following three activity cost pools:
Activity Cost Pool Total Activity

Fabrication 20,000 machine-hours
Order processing 200 orders
Other Not applicable
The other activity cost pool is used to accumulate costs of Idle capacity and organization- sustaining
costs.
The company has provided the following data concerning its costs:
Wages and salaries P480,000
Depreciation 120,000
Occupancy 200,000
Total P800,000
The distribution of resource consumption across activity cost pools is given below:
Fabrication Order processing Other Total

Wages and salaries 55% 20% 25% 100%
Depreciation 10% 45% 45% 100%
Occupancy 25% 40% 35% 100%
The activity rate for the Order processing activity cost pool is closest to:
a.P1,400 per order c. P1,150 per order
b.P1,600 per order d.P800 per order
24. The following information relates to Snowbird Corporation:
Sales at the break-even point P312,500

Total fixed expenses P250,000
Net operating income P150,000
What is snowbird’s margin of safety?

a. P62,500 c. P100,000
b. P187,500 d. P212,500
25. Which of the following is true of a company that uses absorption costing?
a. Net operating income fluctuates directly with changes in sales volume.
b. Fixed production and fixed selling costs are considered to be product costs.
c. Unit product costs can change as a result of changes in the number of units manufactured.
d. Variable selling expenses are included in product costs.
USE THE FOLLOWING TO ANSWER QUESTIONS 26-30:

The Dresden Company uses standard costing for the single product the company makes and sells. The
following data are for the month of April:
 Actual cost of direct material purchased and used: P62,400
 Material price variance: P4,800 unfavourable
 Total materials variance: P14,400 unfavourable
 Standard cost per pound of material: P6
 Standard cost per direct labor hour: P8
 Actual direct labor hours: 3,800 hours
 Labor efficiency variance: P1,600 favourable
 Standard number of direct labor hour per unit of product: 2
 Total labor variance: P680 unfavourable
26. The total number of units produced during April was:

a. 8,000 c. 2,000
b. 12,000 d. 3,800
27. The standard quality of material allowed to produce one unit of product was:
a. 1 pound c. 6 pounds
b. 4 pounds d. 2 pounds
28. The actual material cost per pound was:
a. P6.50 c. P5.00
b. P6.00 d. P7.20
29. The actual direct labor rate per hour was:
a. P16.00 c. P8.00
b. 6.50 d. 8.60
30. The labor rate variance was:
a. P2,280 favourable c. P920 favourable
b. P2,280 unfavourable d. P920 unfavourable
31. The nut house, Inc, sells three types of nuts: almonds, cashews, and walnuts. Ten thousand cans of
nuts were sold in 2011, and the amount of walnuts sold were twice as much as the number of cans of
cashews, whereas almond sakes were one-half the amount of cashew sales. Fixed costs were
P37,680, and the unit variable costs were as follow:
Product Unit Sales Price Unit Variable Cost

Almond P8 P4
Cashews 10 5
Walnuts 6 4
The company plans to earn profit of P6,280. The overall break-even unit sales is:
a. 10,000 c. 12,000
b. 14,000 d. 6,857
32. Qualitative factors:

a. Generally are easily measured quantitative terms.
b. Are generally irrelevant for decision making.
c. May include either financial or nonfinancial information
d. Include customer satisfaction.
33. Lacob Corporation is a wholesaler that sells a single product. Management has provided the following
cost data for two levels of monthly sales volume. The company sells the product for P103.40 per unit.
Sales volume (units) 5,000 6,000
Cost of sales P315,500 P378,000
Selling, general, and administrative cost P162,500 P177,600
The best estimate of the total contribution margin when 5,300 units are sold is:
a. P 56,710 c. P 41,340
b. P133,560 d. P213,590
34. Of the following which is the best reason for using activity-based costing?
a. To keep better track of overhead costs
b. To more accurately assign overhead costs to cost pools so these cost are better controlled.
c. To better assign overhead costs to products.
d. To assign indirect service overhead costs to direct overhead cost pools.
35. Stead Company produces a single product. Last year, the company’s net operating income computed
by the absorption costing method was P6,400, and its net operating income computed by the variable
costing and method was P9,100. The company’s unit product cost was P17 under variable costing and
P20 under absorption costing. If the ending inventory consisted of 2,100 units the beginning inventory
in units must have been:
a. 1,200 c. 3,000
b. 2,100 d. 4,800
36. Black Tool Company has a production capacity of 1,500 units per month, but current production is only
1,250 units. The manufacturing costs are P60 per unit and marking costs are P16 per unit. Doug Hall
offers to purchase 250 units at P76 each for the next five months. Should Black accept the one-time-
only special order if only absorption-costing data are available?
a. Yes, good customer relations are essential.
b. No, the company will only break even.
c. No, since only the employees will benefit.
d. Yes, since operating profits will most likely increase.
37. If Konrade’s engine Company purchases 1,000 TE456 parts from the outside supplier per month, then
its monthly avoidable costs (costs that will no longer be incurred) total:
a. P 82,000 c. P 50,000
b. P 98,000 d. P100,000
38. If Konrade’s Engine Company purchases 1,000 Te456 parts from the outside supplier per month, then
its monthly operating income will:
a. Increase by P2,000 c. Decrease by P3,000
b. Increase by P80,000 d. Decrease by P85,000
39. The maximum price that Konrade’s Engine Company should be willing to pay the outside supplier is:
a. P80 per TE456 part c. P98 per TE456 part
b. P82 per TE456 part d. P100 per TE456 part
40. The sum of the material price variance (calculated at point of purchase) and material quality variance
equals.
a. The total cost variance. c. The material mix variance.
b. The material yield variance d. No meaningful number.
41. In activity-based costing, final cost allocations assign costs to
a. Departments c. Products
b. Processes d. Activities
42. King Company produces a single product. During March, the company had net operating income
under absorption costing that was P3,500 lower than under variable costing. The company sold 7,000
units in March, and its variable costs were P7 per unit of which P3 was variable selling expense. If
fixed manufacturing overhead was P2 per unit under absorption costing then how many units did the
company produce during March?
a. 5,250 units c. 6,500 units
b. 8,750 units d. 6,125 units
43. Engagements should be adequately planned, supervised, and controlled. Controlling involves the
measurement of progress in attaining the engagement plan and objectives. At significant engagement
points, progress should be measured in item of
a. Time schedule, accomplishments, and quality of work.
b. Accomplishment, time schedule, and expenses incurred.
c. Quality of work, number of reports prepared, and time schedule.
d. Accomplishments, number of personnel who played a role in the engagement and attendance of the
participants in the engagement.
44. A company that produces a single product had a net operating income of P85,500 using variable costing
and a net operating income of P90,000 using Absorption costing. Total fixed manufacturing overhead was
P150, 000 and production was 100,000 units.
Between the beginning and the end of the year, the inventory level:
a. Increase by 4,500 units c. Increase by 3,000 units
b. Decrease by 4,500 units d. Decrease by 3,000 units
45. Which of the following is least likely to be considered an advantage of a database?
a. Easy to store large qualities of information.
b. Easy to retrieve information quickly.
c. Easy to organized and reorganize information.
d. Easy to distribute information to every possible user.
46. Which of the following market features is likely to cause a surplus of a particular product?
a. A monopoly c. A price ceiling
b. A price floor d. A perfect market
47. All of the following are ways that companies in developed countries generally amy complete with
companies in developing countries except
a. Technology. c. Quality
b. Customer service. d. Low-cost resources.
48. Laptop computers provide automation outside of the normal office location. Which of the following
would provide the least security for sensitive data stored on a laptop computer?
a. Encryption of data files on the laptop computer.
b. Setting up a password for the screensaver program on the laptop computer.
c. Using a laptop computer with a removable hard disk drive.
d. Using a locking device that can secure the laptop computer to an immovable object.
49. Accounting systems are designed to attain some objectives. Which of the following cannot be
considered an objective of accounting systems?
a. To provide a means by which interested parties may be given information on the financial
position and results of operations of a business organization.
b. To protect the business owners safeguard their assets.
c. To facilitate management planning control and decision-making.
d. To accomplish the different routinary administrative activities of the business organization.
50. The following information relates to Zinc Corporation for last year:
Sales P500,000
Net operating income 25,000
Degree of operating leverage 5
Sales at Zinc are expected to be P600,000 next year. Assuming no change in cost structure,
This means that net operating income for next year should be:
a. P30,000
b. P45,000
c. P50,000
d. P125,000



Tel. No.: (033) 320-2728; 09106547262
AUDITING PROBLEMS
your answer.
4. AVOID ERASURES.
INSTRUCTIONS:
2. Write the subject title “AUDITING PROBLEMS” on the box provided.
__________________________________________________________________________________________
PROBLEM NO.1
Anyang corp. invested its excess cash in marketable equity securities during 2012. The securities do not
qualify as financial asset held for trading. Anyang Corp. Has made an irrevocable election to present in other
comprehensive income subsequent changes in fair value of its investment securities. As of December 31,2012
the company’s securities portfolio consisted of the following:
Investee Company Share Cost Fair Value

Kandong, inc. 30,000 P1,350,000 P1,275,000
Egoy corp. 60,000 4,500,000 4,830,000
Yoga Enterprises 60,000 6,480,000 6,900,000
Totals P12,330,000 P13,005,000
During the year 2013, Anyang Corp. Sold 60,000 shares of Egoy Corp. For P4,800,000 and purchased 60,000
addition shares of kingdom, Inc. And 30,000 shares of Company.
On December 31,2013, Anyang Corp’s portfolio of securities comprised the following:
Investee Company Shares Cost Fair Value

Kandong, Inc. 30,000 P1,350,000 P1,500,000
Kandong, Inc. 60,000 3,900,000 4,350,000
Kongga Company 30,000 1,560,000 1,440,000
Yoga Enterprises 60,000 6,480,000 2,100,000
Totals P13,290,000 P9,390,000
During the year 2014, Anyang Corp. Sold all the Kandong, Inc. Share. Also, 15,000 shares of Kongga
Company were sold at a loss of P270,000. The net realized gain on sale of securities in 2014 amounted to
P1,440,000. On December 31,2014, Anyang Corp’s portfolio of securities consisted of the following:
Page 1
AUDITING PROBLEMS
Investee Company Shares Cost Fair Value
Yoga Enterprises 60,000 P6,480,000 P12,600,000
Kongga Company 15,000 780,000 540,000

Totals P7,260,000 P13,140,000
1. For the year ended December 31,2013, Anyang’s statement of comprehensive Income should report
unrealized loss of
A. P1,3,000,000 C. P3,915,000
B. P1,190,000 D. P4,245,000

2. What amount of unrealized loss should be reported in Anyang’s December 31,2013 Statement of Changes
in Equity?
A. P3,240,000 C. P4,245,000
B. P3,570,000 D. P3,900,000
3. How much was received by Anyang from the sale of its investment in Kandong securities In 2014?
A. P6,960,000 C. P7,020,000
B. P7,560,000 D. P8,280,000
4. Anyang’s statement of Financial Position should report investment in equity securities of
Dec. 31,2014 Dec. 31,2013 Dec. 31,2012
A. P12,330,000 P13,290,000 P7,260,000

B. 13,005,000 9,390,000 13,140,000
C. 12,330,000 9,390,000 7,260,000
D. 13,005,000 13,290,000 13,140,000
5. What amount should be reported as unrealized gain in Anyang’s Statement of Changes in Equity for 2014?
A. P6,420,000 C. P6,960,000
B. P5,880,000 D. P14,760,000
PROBLEM NO. 2
DARWIN CORP., a manufacturer of computer part5s, has been experiencing growth in the demand for its
products over the last several years. This prompted the company to obtain addition manufacturing. A real
estate firm located an available factory and used machinery from production facility and Darwin agreed to
purchase the factory and used machinery from Quezon Company on October 1, 2011. Renovations were
necessary to convert the factory for Darwin’s manufacturing use.
The terms of the agreement required Darwin to pay Quezon P4,500,000 when renovations started on January
1,2012, with the balance to be paid as renovations were complete. The overall purchase price for the factory
and machinery was P36,000,000. The building renovations were contracted to Mallbornes Construction
company at P9,000,000. The payments made as renovation progressed during 2012 are shown below. The
factory was placed in service on January 1, 2013.
QUEZON MALLBORNES
January 1 P 4,500,00 P 2,700,000
April 1 8,100,000 2,700,000
October 1 9,900,000 3,600,000

December 1 13,500,000 3,600,000
P36,000,000 P9,000,000
On January 1, 2012, Darwin obtained a 2-year, P9 million loan with 12% interest rate to finance the renovation
of the acquired factory. This is Darwin’s only outstanding loan during 2012.
Darwin’s policy regarding purchases of this nature is to use the appraisal value of the land for book purposes
and prorate the balance of the purchase price over the remaining items. The building had originally cost
Quezon P27,000,000 and had a net book value of P4,500,000 , while the machinery originally cost
P11,250,000 and had a net value of P3,600,000 on the date of sale. The land was recorded on Quezon’s
books at 3,600,000.
The following values were determined based on appraisal conducted by independent appraisers at the time
acquisition.
Land P26,100,000
Building 9,450,000
Machinery 4,050,000
Gino G. Nario, Darwin’s chief engineer estimated that the renovated plant would be used for 15 years, with an
estimate residual value of P27,700,000. Nario estimated that the productive machinery would have a remaining
useful life of 5 years and residual value of P270,000. Darwin’s depreciation policy is to apply the 200%
declining balance method for machinery and the 150% declining balance method for the plant. One-half year’s
depreciation is taken in the year the plant is placed in service and one-half is allowed when the property is
disposed of or retired.

Determined the amounts to be recorded on the books of Darwin corp. As of December 31, 2012, for each of
the following properties.
6. Land
A. P23,727,000 C. P26,100,000
B. P27,180,000 D. P32,272,000
7. Building
A. P17,010,000 C. P9,670,800
B. P18,670,800 D. P15,930,000
8. Machinery
A. P3,681,900 C. P4,005,900
B. P3,294,000 D. P2,970,000
Calculate the December 31,2014 net book value of the following:
9. Building
A. P14,312,700 C. P13,778,100
B. P15,351,525 D. P14,543,550
10. Machinery
A. P1,425,600 C. P1,296,000
B. P1,069,200 D. P1,188,000
PROBLEM NO.3
Presented below are three(3) Independent cases relating to the audit of shareholders’ equity.
Answer the question/s at the end of each case.
1. KANDABA COMPANY began operations on January 1, 2012, by Issuing at P15 per share one-half of the
480,000 ordinary shares (P1 par value) that had been authorized for issue. In addition, Kandaba has 250,000
6% preference shares (P5 par value) authorized. During 2012, Kandaba reported net income of P735,00 and
declared dividends of P112,250.
During 2013, Kandaba completed the following transactions:
Jan. 10 Issued an additional 35,000 ordinary shares for P16.50 per share.
Apr. 2 Issued 80,000 preference shares for P7 per share.
July 21 Authorized the acquisition of a custom-made machine to be delivered in January 2014.
Kandaba appropriated p147,500 of retained earnings for the purchase of the machine.
Oct. 25 Issued an addition 20,000 preference shares for P10 per share.
Dec. 31 Reported P732,000 of net income and declared a dividend of P420,000 to shareholders of
Record on January 31,2014, to be paid on February 4,2014.
11. What is the total shareholders’ equity on December 31, 2013?
A. P4,222,750 C. P5,724,750
B. P5,872,250 D. P6,019,750
12. What is the unappropriated retained earnings balance on December 31, 2013?
A. P4,807,250 C. P4,534,750
B. P4,222,750 D. P4,387,250
2.BULDOG CO. Is authorized to issue 300,000 of P2 par value ordinary shares. The company has the
following transactions:
a) Issued 60,000 shares at P32 per share; receive cash.
b) Issued 1,000 shares, selling at P36 per share, to lawyers for services in connection with the
organization of the corporation. The value of the legal services was P35,000.
c) Issued 1,500 shares, valued objectively at P33,000, to the employees instead of paying them
cash wages.
d) Issued 137,500 shar5es in exchange for a building value at P885,000 and land valued at
P24,000. (The building was originally acquired by the investor for P750,000 and has P300,000
of accumulated depreciation; the land WAS ORIGINALLY acquired for P90,000.)
e) Received cash for 29,500 shares issued at P38 per share.
13. The statement of financial position will rep[ort share premium of
A. P3,777,000 C. P3,775,000
B. P5,675,000 D. P3,776,000
3. TAGOGO COMPANY has been paying regular quarterly dividends of P1.50 and wants to pay the same
amount in the third quarter of 2013. The following information relates to the company’s equity:
Jan. 1 Shares outstanding, 500,000; P2 par (900,000 shares authorized).

Feb. 15 Issued 30,000 new shares at P10.50.
Mar. 31 Paid quarterly dividends of P1.50 per share.
May 12 Converted P1,000,000 bonds tom ordinary shares at the rate of 50 shares per
P1,000 bond.
June 15 Issued a 10% share dividend.
30 Paid quarterly dividends of P2 per share.
14. What is the total amount that Tagogo will have to pay in dividends in the third quarter in order to pay P2 per
share?
A. P1,276,000 C. P1,260,000
B. P1,160,000 D. P1,060,000
15. What is the total amount of dividends to be distributed during the year assuming no equity transactions
occur after June 30?
A. P4,640,000 C. P4,240,000
B. P5,104,000 D. P4,888,000
PROBLEM NO.4
Presented below are the condensed income statements of LAROSA CORPORATION for the years
Ended December 31,2013 and 2012.
2013 2012
Sales P7,500,000 P7,350,000
Cost of goods sold 5,025,000 4,950,000
Gross Income 2,475,000 2,400,000
Operating expenses 1,012,500 975,000
Operating income 1,462,500 1,425,000
Gain on sale of division 300,000 ---
1,762,500 1,425,000
Income tax expenses (30%) 528,750 427,500
Net Income P1,233,750 P997,500
On October 10, 2013, Larosa entered into an agreement to sell the assets of one of its geographical
segments. The geographical segment comprises operations and cash flows that can be clearly
distinguished operationally and for financial reporting purposes, from the rest of the company. The
segment was sold on December 31, 2013, for P2,625,000. The book value of the of the segment’s
assets was P2,325,000. The segment’s contribution to Larosa’s operating income before tax for each
for year was as follows:
2013 P170,625 loss

2012 P121,875 income
16. What amount should be reported as income from continuing operations for 2012?
A. P912,187 C. P937,782
B. P997,500 D. P1,122,188
17. What amount should be reported as income from continuing operations for 2013?
A. P904,312 C. P1,143,187
B. P933,188 D. P1,233,750
18. What amount should be reported as income (loss) from discontinued operations for 2013?
A. P170,625 C. (P119,438)
B. P210,000 D. P90,562
19. Assume that by December 31,2013, the segment had not yet been sold but was considered held for sale.
The fair value of the segment’s assets on December 31 was P2,625,000. The post-tax income (loss) from
discontinued operations for 2013 should be
A. (P90,562) C. 90,562
B. 119,438 D. (P119,438)
20. Assume that by December 31,2013, the segment had not yet been sold but was considered held for sale.
The fair value of the segment’s assets on December 31 was P1,875,000. The post-tax income (loss) from
discontinued operations for 2013 should be
A. P90,562 C. (P119,438)
B. P1,193,062 D. (P434,438)
PROBLEM NO.5
ACERO CORP. Was Incorporated on January 2, 2012. The corporation’s financial statements for its first
year’s operations were not examined by a CPA. You have been engaged to audit the financial statements for
the year ended December 31, 2013, and your audit is substantially completed. The corporation’s trial balance
appears below.
Acero Corp.
TRIAL BALANCE
December 31,2013
Debit Credit
Cash P 450,000
Accounts receivable 2,190,000
Allowance for doubtful accounts
P43,800
Inventories 1,506,000
Machinery and equipment 3,570,000
Accumulated depreciation 786,000
Patents 3,846,000
Leasehold improvements 900,000
Prepaid expenses 1,350,000
Goodwill 900,000
Licensing agreement No.1 1,800,000
Licensing agreement No.2 1,680,000
Accounts payable 2,190,000
Unearned revenue 518,400
Share capital 9,000,000
Retained earnings, January 1,2013
4,771,800
Sales 21,600,000
Cost of goods sold 14,250,000
Selling and administrative expenses 5,583,000
Interest expense 285,000
Loss on extinguishments of dept 600,000
Totals P38,910,000 P38,910,000
The following information relates to accounts that may yet require adjustment.
1. Patents for Acero’s manufacturing process were acquired January 2, 2013, at a cost of P2,805,000. An
additional P1, 041,000 was spent on December 29,2013, to improve machinery covered by the patents
and charged to the Patents account. Depreciation on property, plant, and equipment has been properly
recorded for 2013. Acero uses the straight-line method for all depreciation and amortization and the
legal life on its patents.
2. On January 3, 2012, Acero purchased Licensing Agreement No.1, which was believed to have an
indefinite useful life. The balance in the Licensing Agreement No.1 account includes its purchase price
of P1, 710,000 and expenses of P90,000 related to the acquisition. On January 1,2013, Acero
purchases Licensing Agreement No.2, which has a life expectancy of 10 years. The balance in the
Licensing Agreement No.2 account includes its P1, 620,000 purchase price and P180,000 in
acquisition expenses, but it has been reduced by a credit of P120,000 for the advance collection of
2014 revenue from the agreement.
In late December 2012, an explosion caused a permanent reduction in the expected revenue-producing
value of Licensing Agreement No.1 and in January 2014, a flood caused additional damage that
rendered the agreement worthless. The recoverable amount of Licensing Agreement No.1 was
determined to be P720, 000 at December 31, 2012.
3. The balance in the Goodwill account represents amount paid on December 30, 2012, for a four-year
advertising program, estimated to assist in creasing Acero’s sales.

4. The Leasehold Improvements account includes (a) the P450,000 cost of improvements with a total
estimated useful life of 12 years, which Acero as tenant made to leased premises in January 2012, and
movable assembly line equipment costing P450,000 that was installed in the leased premises in
December 2013. Acero paid its rent in full during 2013. A 10-year non-renewable lease was signed
January 3, 2012, for the leased building that Acero used in manufacturing operations.
21. What is the carrying value of Patents on December 31, 2013?

A. P3,846,000 C. P3,653,700
B. P2,664,750 D. P2,805,000
22. What amount of impairment loss should be recognized in 2012?
A. P 0 C. P1,080,000
B. P1,710,000 D. P990,00
23. What is the carrying value of Licensing Agreement no.2 on December 31,2013?
A. P1,800,000 C. P1,728,000
B. P1,920,000 D. P1,620,000
24. What is the carrying value of Licensing Improvements on December 31, 2013?
A. P375,000 C. P360,000
B. P405,000 D. P720,000
25. What is the adjusted balance of the Machinery and Equipment account on December 31, 20-13?
A. P3,570,000 C. P4,275,000
B. P5,061,000 D. P4,611,000
PROBLEM NO.6
Presented below are two (2) independent situations. Answer the questions at the end of each situation.
On December 31, 2012, BANTAY COMPANY acquired a piece of equipment from Sendong Company by
issuing a P600, 000, note payable in full on December 1, 216. Bantay’s credit rating permits it to borrow funds
from its several lines of credit at 10%. The equipment is expected to have a 5-year life and a P75,000 salvage
value.
26. What is the equipment’s carrying value on December 31, 2015?
A. P208,922 C. P298,749
B. P163,922 D. P163,922
27. What is the note payable’s carrying value December 31, 2015?
A. P545,453 C. P298,749
B. P465,866 D. P163,922
ONDONG COMPANY purchased machinery on December 31, 2012, paying P120,000 down and agreeing
to pay the balance in four equal instalments of P90,000 payable each December 31. Implicit in the
purchase price is an assumed interest of 12%.
28. What is the cost of the machinery purchased on December 31 2012?

A. P273,362 C. P480,000
B. P393,362 D. P349,624
29. How much interest expense should reported in Ondong’s Income statement for the year ended December
31, 2014?
A. P18,253 C. P25,940
B. P32,803 D. P64,060
30. What is the carrying value of the note at December 31,2015?
A. P152,105 C. P180,000
B. P216,165 D. P80,358
PROBLEM NO.7
LYKA COMPANY’s net income for the past three years are presented below;
2013 2012 2011
P480,000 P450,000 P360,000
During the 2013 year-end audit, the following items come to your attention:
1. Lyka bought a truck on January 1, 2010 for P196,000 with a P16,000 estimated salvage value and a
six-year life. The company debited an expense account and credited cash on the purchase date for
the entire cost of the asset. (Straight-line method)

2. During 2013, Lyka changed from the straight-line method of depreciating its cement plant to the
double-declining balance method. The following computations present depreciation on both bases:
2013 2012 2011

Straight-line 36,000 36,000 36,000
Double-declining 46,080 57,600 72,000
The net income for 2013 was computed using the double-declining balance method, on the January 1,
2013 book value over the useful life remaining at the time. The depreciation recorded in 2013 was
P72,000.
3. Lyka, in reviewing its provision for uncollectible during 2013, has determined that 1% is the
appropriate amount of bad debt expense to be charged to operations. The company had use 1/2 of
1% as its rate in 2012 when the expense had been P18,000 and P12,000, respectively. The company
recorded bad debt expense under the new rate for 2013. The company would have recorded P6,000
less of bad debt expense on December 31, 2013 under the old rate.
31. What is the entry necessary to correct the books for the transaction in part 1 of the problem, assuming that
the books for the current year are still open?
A. Equipment 196,000
Depreciation expense 30,000
Retained earnings 106,000
B. Equipment 196,000
C. Equipment 166,000
D. Equipment 196,000
Depreciation expense 30,000
32. What is the correct net income to be reported in 2011?
A. P330,000 C. P360,000
B. P336,000 D. P294,000
A. P398,400 D. P480,000
B. P420,000
C. P441,600
A. P510,000 C. P444,000
B. P428,400 D. P450,000
35. Which of the following is (are) the proper time period(s) to record the effects of a change in accounting
estimate?
A. Current period and prospectively C. Retrospectively only
B. Current period and retrospectively D. Current period only
PROBLEM NO.8
At the beginning of 2013, an entity grants 50 share option each to 500 employees. The grants is conditional
upon the employees remaining in the entity’s employ during a vesting period of three years.
The exercise price at grant date is estimated at P60. However, the exercise price drops to P40 if the entity’s
earning increase by at least an average of 10% per year over the three-year period.
On grant date, the entity estimates that the fair value of the share options, with an exercise price of P40, is P20
per option. If the exercise price is P60, the entity estimates that the share options have a fair value of P18 per
option.

The following actual events occurred:
2013
 30 employees have left. The entity expects on the basis of a weighted average probability that a further
30 employees will leave during 2014 and 2015, respectively.
 The entity’s earning increase by 12% and the entity expects that earning will continue to increase at this
rate over the next two years. The entity therefore expects that the earnings target will be achieved, and
hence the share options will have an exercise price of P40.
2014
 At year end, a further 35 employees have resigned. The entity expects that a further 30 employees will
leave during 2015.
 The entity’s earning increased by 13% and it continues to expect that the earning target will be
achieved.
2015
 A further 28 employees have left by the end the year.
 Due to a general decrease in market demand, the entity’s earnings increased by only 3% because the
earnings target was not achieved , the 50 vested share options for each employee have exercise price
of P60.
Base on the preceding information, determine the following:
36. Compensation expense for 2013

A. P315,000 C. P136,667
B. P96,300 D. P122,100
A. P96,300 C. P136,667
B. P133,333 D. 135,000
A. P16,667 C. P133,333
B. P135,000 D. P96,300
39. Share options outstanding at the end of 2014
A. P270,000 C. P133,333
B. P405,000 D. P229,633
40. Share options outstanding at the end of 2015
A. P405,000 C. P410,000
B. P0 D. P366,000
PROBLEM NO.9
In making the first audit of the Delivery Equipment account of DELTA CORPORATION as of December 31,
2013, you encounter the encounter the following facts.
DELIVERY EQUIPMENT
Date Particulars Debit Credit
1/1/11 Trucks 1,2,3, and 4 P3,200,000
3/15/12 Replacement of truck 3 tires 25,000
7/1/12 Truck 5 800,000
7/10/12 Reconditioning of truck 4, which
was damaged in a collision 35,000
9/1/12 Insurance recovery on Truck 4 accident
P 33,000
10/1/12 Sale of Truck 2 600,000
4/1/13 Truck 6 1,000,000 150,000
5/2/13 Repainting of Truck 4 27,000
6/30/13 Truck 7 720,000
12/1/13 Cash received on lease of Truck 7 22,000
Accumulated Depreciation
Date Particulars Debit Credit

12/31/13 Depreciation expense P300,000
12/31/12 Depreciation expense 300,000
12/31/13 Depreciation expense 300,000

Additional Information:
1. Only July 1, 2012 Truck 3 was traded in for a new truck, Truck 5, costing P850,000; the selling party
allowed a P50,000 trade in value for the old truck.
2. On April 1,2013, Truck 6 was purchased for P1,000,000; Truck 1n and cash of P1,000,000; Truck 1
and cash of P850,000 being given for the new truck.
3. You are instructed by the senior in-charge of the audit to accept the depreciation rate of 20% by unit
basis.
4. Unit cost of Truck 1 to 4 is at P800, 000 each.
41. What is the correct cost of Truck No. 5?
A. P850,000 C. P900,000
B. P800,000 D. P560,000
42. What is the correct depreciation expense for 2012?
A. P725,000 C.P605,000
B. P305,000 D.P600,000
43. What is the correct depreciation expense for 2013?
A. P552,000 C. P712,000
B. P592,000 D. P300,000
44. The entry to correct the depreciation charges for the years 2011 through 2013 should include a credit to
Accumulated Depreciation of
A. P645,000 C.P900,000
B. P937,000 D.P292,000
45. The balance of the Delivery Equipment account at December 31, 2013 should be
A. P5,770,000 C. P4,170,000
B. P3,320,000 D. P3,370,000
PROBLEM NO.10
SUMPAAN CORP. began operations in 2008. On July 15,2013, a fire broke out in the company’s warehouse
destroying all inventory and many accounting records. The following information was assembled from the
microfilmed records. All sales and purchases are on account.
Jan. 1, 2013 July 15,2013

Inventory P 287,700
Accounts receivable 261,180 P257,780
Accounts Payable 176,280 245,700
Collections from customers, Jan. 1,2013---July 15,2013 1,507,600
Payments to suppliers, Jan. 1,2013-July 15,2013 975,000
Goods out on consignment on July 15,2013, at cost 97,500
Goods in transit at July 15,2013, purchased FOB shipping point
(included in the July 15 accounts payable balance) 34,750
The following is a summary of prior year’s sales and gross profit on sales:
2010 2011 2012
Sales P 1,252,000 P 1,410,000 P 1,360,000
Gross 375,600 366,600 462,400
46. What is the company’s average gross profit ratio based on its prior years’ sales?
A. 26% C. 30%
B. 34% D. 29%
47. What is the company’s total sales for the period January 1 through July 15 of the current year?
A. P1,504,200 C. P1,360,380
B. P1,511,000 D. P1,009,670
48. What is the company’s total purchases for period January 1 through July 15 of the current year?
A. P905,580 C. P1,044,420
B. P912,170 D. P1,009,670
49. What is the company’s estimated inventory on July 15,2013, before the fire?
A. P186,605 C. P146,930
B. P244,430 D. P279,180
50. What is the inventory fire loss?
A. P146,930 C. P132,250
B. P186,605 D. P112,180

PROBLEM NO.11
YANG CO. Started operations on October 1,2008. Its accounts at June 30, 2011 included the following
balances:
Machinery (at cost) P 196,000

Accumulated depreciation-machinery 95,772
Vehicles (at cost; purchased February 20, 2009) 320,000
Accumulated depreciation-vehicles 178,880
Land (at cost; purchased March 20,2011) 150,000
Building (at cost; purchased March 20,2011) 581,200
Accumulated depreciation-building 6,840
Land improvements (at cost; purchased March 20,2011) 36,000
Accumulated depreciation-land improvements 600
Details of machines owned at June 30,2011 were:
Machine Purchase Date Cost Useful Life Residual Value

1 October 2,2008 P50,000 4 years P5,000
2 December 27,2008 84,000 5 years 8,000
3 July 29,2009 62,000 4 years 6,000
a. Yang calculates depreciation to the nearest month and balances the records at month-end.
Recorded amounts are rounded to the nearest peso, and the reporting date is June 30.
b. Yang uses straight-line depreciation for all depreciable assets except vehicles, which are depreciated
on the diminishing balance at 30% p.a.
c. The vehicles account balance reflects the total paid for four identical delivery vehicle, which cost
P80,000 each.
d. On acquiring the land and building, Yang estimated the building’s useful life and residual value at 20
years and P34,000 respectively.
e. The land improvements account balance reflects a payment of P36,000 made on march 20, 2010 for
driveways and a car park. On acquiring these land improvements, Yang estimated their useful life at 15
years with no residual value.
The following transactions occurred from July 1,2011:
Aug. 03, 2011 Purchased a new machine (machine 4) for a cash price of P72,000. Installation costs of
P3,600 were also paid. Yang estimated the useful life and residual value at five years and
P7,000 respectively.
Nov. 15, 2011 Paid vehicle repairs of P1,200.
Dec. 30, 2011 Exchanged one of the vehicles for items of fixtures that had a fair value of P34,000 at the
date of exchange. The fair value of the vehicle at the date of exchange was P32,000. The
fixtures originally cost P100,000 and had been depreciated by P62,000 to the date of
exchange in the previous owner’s books. Yang estimated the fixtures’ useful life and
residual value at five years and P5,000 respectively.
Mar. 10, 2012 Sold machine 1 for P10,000 each.
June 30, 2012 Recorded depreciation expense.
Sep. 20, 2012 Traded in machine 3 for a new machine (machine 5). A trade-in-allowance of P20,000 was
received for machine 3 and P68,000 was paid in cash. Yang estimated machine 5’s useful
life and residual value at six years and P10,000 respectively.
Dec. 30, 2012 Scrapped machine 2, as it was surplus to requirements and no buyer could be found for it.
Feb. 08, 2013 Paid P16,000 to overhaul machine 4, after which machine 4’s useful life was estimated at
two remaining years and its residual value was revised to P10,000.
June 30, 2013 Recorded depreciation expense.
Based on the preceding information, determine the following:
51. Depreciation expense on machinery for the year ended June 30, 2012.
A. P53,027 C. P49,277
B. P50,420 D. P41,777
52. Gain on exchange on December 30, 2011.
A. P4,012 C. P4,000
B. P2,012 D. P 0
53. Total depreciation expense on all depreciable assets for the year ended June 30,2012.
A. P125,216 C. P113,489
B. P111,281 D. P118,781
54. Gain on trade in of machine no. 3 on September 20, 2012.
A. P23,667 C. P7,667
B. P2,333 D. P 0
E.
55. Total depreciation expense on all depreciable assets for the year ended June 30, 2013.
A. P98,951 C. P106,551
B. P109,451 D. P82,951
PROBLEM NO.12
SAM, INC grants its customers 30 days credit. The company uses the allowance method for its uncollectible
accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 2% times the amount
of credit sales for the month. At the fiscal year-end of uncollectible accounts is adjusted accordingly.
At the end of 2012, accounts receivable were P3,750,000 and the allowance account had a credit balance of
P318,000. Accounts receivable activity for 2013 was as follows:
Credit sales P11,400,000
Write-offs 246,000
Collections ?
The company’s controller prepared the following aging summary of year-end accounts receivable:
Age Group Amount Percent Uncollectible
0-60 days P2,475,000 2%
61-90 days 660,000 10%
91-120 days 150,000 30%
Over 120 days 384,000 40%
Total P3,669,000
Based on the preceding information, determine the following:
56. Allowance for uncollectible accounts before year-end adjustment

A. P314,100 C. P300,000
B. P318,000 D. P228,000
57. Required balance in the allowance for uncollectible accounts at December 31,2013
A. P314,100 C. P318,000
B. P300,000 D. P228,000
58. Correct bad debt expense for 2013
A. P213,900 C. P14,100
B. P242,100 D. P3,369,0
E. 00
59. Net realizable value of accounts receivable at December 31, 2013
A. P3,426,900 C. P3,354,900
B. P3,669,000 D. P3,369,000
60. Collections from customers during 2013
A. P14,823,000 C. P14,904,000
B. P11,235,000 D. P3,996,000



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AUDITING PROBLEMS
your answer.
4. AVOID ERASURES.
INSTRUCTIONS:
2. Write the subject title “AUDITING PROBLEMS” on the box provided.
__________________________________________________________________________________________
PROBLEM 1- ANYANG CORP.
1. D Unrealized loss- OCI, 2013

(P13,635,000 CV-P9,390,000 FV) P4,245,000
2. D Unrealized gain, Jan. 1, 2013
(P13,005,000 – P12,330,000) 675,000
Unrealized gain related to securities sold
(P4,830,000 – P4,550,000) (330,000)
Unrealized loss in 2013 (4,245,000)
Cumulative unrealized loss, Dec. 31, 2013 (P3,900,000)
3. B Nut realized gain in 2014 P1,440,000
Loss on sale of Kongga shares 270,000
Gain on sale of Kandong securities 1,710,000
Fair value of Kandong securities sold 5,850,000
Proceeds from sale
P7,560,000
4. B At fair values -
5. B Unrealized loss, Dec. 31, 2013 P3,900,000
Unrealized gain on Kandong securities sold
(P5,850,000 – P5,250,000) 600,000
Unrealized loss on Kongga shares sold
(P780,000 – P720,000) (60,000)
Adjusted balance 4,440,000
Unrealized gain in 2014
(P13,140,000 – P2,820,000) (10,320,000)
Unrealized gain, Dec. 31, 2014
P5,880,000
PROBLEM 2 – DARWIN CORP.
6. C Land (appraised value)

P26,100,000
7. A Total purchase price P36,000,000
Land appraise
(26,100,000)
Balance for allocation P 9,900,000
Building (9,450/13,500 x P9,000,000) P6,930,000
Renovations
9,000,000

Capitalized Interest(9,000,000 x 12%)
1,060,000
Total cost of building
P17,010,000
8. D Machinery (4,050/13,500 x P9,900,000)
P2,970,000
9. D Cost of building
P17,010,000
2013 depreciation (P17,010,000 x 10% x ½) (850,500)
2014 depreciation (P17,010,000 – P850,500 =
P16,159,500 x 10%) 1,615,950
Net book value, Dec. 31, 2014 P14,543,550
*150% x 1/15
10. D Cost of machinery P2,970,000

2013 depreciation (P2,970,000 x 40%* x ½) (594,000)
2014 depreciation (P2,970,000 – 594,000)
P2,376,000 x 40%) (950,400)
Net book value, Dec. 31, 2014 P1,425,600
 200% x 1/5
PROBLEM 3 – KANDARA CO/BULDOG CO/TANOGO CO.
11. B Issuance of ordinary shares (P15 x 240,000) P3,600,000

Retained earnings (735,000 – P112,250) 622,750
Shareholders’ equity, Dec. 31, 2012 4,222,750
2013
Jan. 10 issuance of ordinary shares
(P16.50 x 35,000) 577,500
Apr. 2 issuance of pref. Shares (F7x 80,000) 560,000
Oct. 25 issuance of pre3f. Shares(P10 x 20,000) 200,000
Net Income
732,000
Dividends declared
(420,000)
Shareholders’ equity, Dec, 31, 2013 P5,872,250
12. D Retained earnings, Jan. 1, 2013 P622,750
Net income
732,000
Dividends (420,000)
Appointment for the purchase of machinery (147,500)
Unappropriated retained earnings Dec..31, 2013 P787,250
13. B a.) P30 x 60,000 P1,800,000
b.) P35,000 – (P2 x 1,000) 33,000
c.) P33,000 – (P2 x 1,500) 30,000
d.) P885,000 + P240,000 = P1,125,000 – (P2 x 137,500)
850,000
e.) PP35 x 29,500 1,062,000
Total share premium P3,775,000
14. A Jan. 1 Shares outstanding 500,000
Feb. 15 Issuance 30,000
May 12 Bond conversion (50 x 1,000)
50,000
June 11 Share dividend (580,000 x 10%) 58,000
June 30 Shares outstanding 638,000
Dividend rate P2
Dividends to be paid P1,278,000
15. D 1st quarter (500,000 + 30,000 = 530,000 x P2) P1,060,000
2nd – 4th quarter (P1,276,000 x 3) 3,828,000
Total dividends to be paid P4,888,000

PROBLEM 4- LAROSA CORPORATION
16. A Operating Income for 2012, as reported P1,425,000

Income from discontinued operations (121,875)
Income from continuing operations before tax 1,303,125
Income tax (30%) 390,938
Income from continuing operations for 2013 P912,187
17. C Operating Income for 2013, as reported P1,462,500
Loss from discontinued operations 170,625
Income from continuing operations before tax 1,633,126
Income tax (30%) 489,938
Income from continuing operations for 2013 P1,143,187
18. D Gain on sale of assets (P300,000 x 70%) P210,000
Loss from discontinued operations (170,625 x 70%) (119,438)
Post-tax Income from discontinued operations P90,562
19. D Post-tax loss from discontinued operations
(P170,625 x 70%) P119,438
20. D Post-tax loss from discontinued operations
(P170,625 + P450,000*= P620.625 x 70%) P434,438
Implement loss = P1,875,000 FV- P2,325,000 CV
PROBLEM 5 – ACERO CORP.
21. B Cost of patents P2,805,000

Amortization for 2013 (P2,805,000/20 years) (140,250)
Carrying value, Dec. 31, 2013 P2,664,750
22. C Cost of licensing agreement no.1 P1,800,000
Recoverable value 720,000
Impairment loss P1,080,000
23. D Cost of licensing agreement no.2
(P1,620,000 + P180,000) P1,800,000
Amortization (P1,800,000/10) (180,000)
Carrying value, Dec. 31, 2013 P1,620,000
24. C Cost of leasehold Improvements P450,000
Accumulated depreciation (450,000 x 2/10) (90,000)
Carrying value, Dec. 31, 2013 P360,000
25. B Machinery and equipment per books, 12/31/13 P3,570,000
Cost of Improving machinery 1,041,000
Assembly line equipment 450,000
Adjusted balance, Dec. 31, 2013 P5,061,000
PROBLEM 6 – BANTAY COMPANY/ONDONG COMPANY

26. A Cost of equipment (P600,000 x 0.68301) P409,806
Accumulated depreciation, Dec. 31, 2015
(P409,806 – P75,000 = P334,806 x 3/5)
(200,884)
Carrying value, Dec. 31, 2015 P209,922
27. A Note payable, Dec. 31, 2015 P545,453
28. B Down payment P120,000
PV of instalment payments (P90,000 x 3.03735) 273,362
Cost of machinery P393,362
29. C Interest expense for 2015 P25,940
30. D Note payable, Dec. 31, 2015 P80,358
PROMBLEM 7 – LYKA COMPANY

31. A
32. A 2011 (P360,000 – P30,000) P330,000
33. B 2012 (450,000 – P30,000) P420,000
34. D 2013 (P480,000 – P30,000) P450,000
35. A
PROBLEM 8 – LYKA COMPANY
Compensation Cumulative
Expense Compensation
Year Calculation for Period Expense
1 P20 x 410 x 50 x 1/3 P136,667 P136,667
2 P20 x 405 x 50 x 2/3 133,333 270,000
3 P18 x 407 x 50 96,300 366,300
PROBLEM 9 – DELTA CORPORATION
2011 2012 2013 Total

1 (Traded in 4/1/13) P160,000 P160,000 P40,000 P360,000
2 (Sold 10/1/12) 160,000 120,000 - 280,000
3 (Traded in 7/1/12) 160,000 80,000 - 240,000
4 160,000 160,000 160,000 480,000
5 (Acquired 7/1/12) - 85,000 170,000 225,000
6 (Acquired 4/1/13) - - 50,000 150,000
7 (Acquired 6/30/13) - - 72,000 72,000
Correct depreciation P640,000 P605,000 P592,000 P1,837,000

Depreciation per client (300,000) (300,000) (300,000) (900,000)
Understatement P340,000 P305,000 P292,000 P937,000
PROBLEM 10 – SUMPAAN CORP.

36. C 30% + 28% + 34%/3 30%
37. C Accounts receivable July 15 P257,780
Collections from customers 1,507,600
Total 1,765,380
Accounts receivable, Jan. 1 (261,180)
Estimated sales, Jan. 1 – July 15 P1,504,200
38. C Accounts payable, July 15 P245,700
Payments to suppliers 975,000
Total 1,220,700
Accounts payable, Jan. 1 (176,280)
Estimated purchases, Jan. 1 – July 15 P1,044,420
39. D Inventory, January 1 P287,700
Estimated purchase 1,044,420
Goods available for sale 1,332,120
Estimated cost of goods sold(P1,504,200 x 70%) (1,052,940)
Estimated inventory, July 15 P279,180
40. A Estimated inventory, July 15 P279,180
Goods out on consignment (97,500)
Goods in transit (34,750)
Inventory fire loss P146,930
PROBLEM 11 – YANG CO.

41. M1 (P50,000 - P5,000)/4 x 8/12 P7,500
M2 (P64,000 - P8,000)/5 15,200
M3 (P62,000 – P6,000)/4 14,000
M4 (P75,600 –P7,000)/5 x 11/12 12,577
Total depreciation expense – machinery (C) P49,277
42. Cost of vehicle trade in P80,000
Accumulated depreciation, Dec. 30, 2011:
Balance, June 30, 2011 (P178,880 x ½ ) P44,720
Depreciation, 7/1/11 – 12/30/11
(P320,000 – P178,880 =
P141,120 x ¼ x 30% x 6/12) 5,292 50,012
Carrying value, Dec. 30, 2011 29,988
Fair value of vehicle traded in 32,000
Gain on exchange, Dec. 30, 2011 (B) P2,012

43. Machinery 49,277
Vehicle (P141,120 x ¾ x 30%) + P5,292
37,044
Building (P581,200 – P34,000 = P547,200/20) 27,360
Land Improvements (36,000/15) 2,400
Fixtures (32,000 – P5,000 = P27,000/5 x 6/12) 2,700
Total depreciation expense (D) P118,781
44. Cost of machine no.3
Accumulated depreciation, Sep. 20, 2012
(P62,000 – P6,000 = P56,000/4 x 38/12)
Carrying value 17,667
Trade in allowance
Gain on trade in (B)
45. Machinery:
M2 (P84,000 – P8,000 = P76,000/5 x 6/12) P7,600
M3 (P62,000 – P6,000 = P56,000/4 x 3/12) 3,500
M4 – July 1, 2012 – Feb. 8, 2013:
(P75,600 – P7,000 = P66,600/5 x 7/12) P8,003
- Feb. 8, 2013 – June 30, 2013
(P61,020/2 years x 5/12) 12,712 20,175
M5 (P88,000 – P10,000 = P78,000/6 x 9/12) 9,750 P41,565
Vehicles
Cost (P320,00 x ¾ ) P240,000
Accum. Depr., June 30, 2012
(P178,880 – P50,012 + P37,044 (165,912)
Carrying value, June 30, 2012 74,088
Multiply by depreciation rate 30% 22,226
Building (P581,200 – P34,000 = P547,200/20) 27,360
Land improvements P36,000/15) 2,400
Fixtures (P32,00 – P5,000 = P27,000/5) 5,400
Total depreciation expense, June 30, 2013 (A) P98,951
PROBLEM 12 – SAM,INC.
46. C 57. A 58.B 59.C 60.B



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BUSINESS LAW AND TAXATION

your answer.
4. AVOID ERASURES.
INSTRUCTIONS:
2. Write the subject title “BUSINESS LAW AND TAXATION” on the box provided.
__________________________________________________________________________________________
1. If debtor gives a property to his creditor who accepts it in payment of an obligation in money, this will be
governed by
a. Cession c. Exchange
b. Barter d. Sales
2. D owes C P6,000. No date for payment was stipulated by the parties. Which is correct?
a. C can require D to pay when the period arrives
b. C can require D to pay at anytime
c. D is not liable to C because the obligation is void there being no date of payment
d. D is not required to pay unless C goes to court to require D to pay
3. D borrowed P100,000 from C. the obligation is secured by a mortgage on D’s land and building C
registered the mortgage with the Register of Deeps. Thereafter, D sold the land and building to B who was
not aware of the existence of the mortgage at the time of sale since only the photocopy of the transfer
certificate of title which did not yet contain the annotation of the mortgage as shown to him. It was only
when he went to the Register of Deeps to register the sale of the land and building to him that the learned
of the mortgage. Which is correct?
a. C can collect from D and if D cannot pay, C can foreclose the mortgage
b. C can collect from D cannot pay, C cannot foreclose the mortgage
c. C cannot collect from D. he can only go after the mortgage which was given as security
d. C cannot foreclose the mortgage because B is a buyer in good faith
4. If the illegal contract between the parties is a criminal offense but only one party is guilty, which of the
following is wrong?
a. The guilty party will be criminally prosecuted
b. Neither party may compel the other to comply with his undertaking
c. The instruments shall be confiscated in favour of the government
d. The innocent party shall have no right to receive what he had given
5. A, a bachelor who has sired many children by different women, donated a house and lot to T, his
illegitimate son. The deep of donation and its acceptance were in a public instrument and a new certificate
of title to the house and lot was issued in the same of T. Later, A discovered that T was not his son. Can A
annul the contract?
a. No, because all requisites have been complied with and a new title had been issued in the name of T
b. Yes, A may annul the contract on the ground of mistake as to the identity of T
c. No, but A can ask for rescission because he suffered damages
d. Yes, the contract is void ab inition
6. In January 2002, S, 17 years old, sold his only car to B, 21 years old. The sale was without the knowledge
of G, the guardian of S. Assuming that an annulment case is field today, which is correct?
a. S may bring the action for annulment
b. G may bring the action for annulment
c. B may bring the action for annulment
d. Annulment will not prosper whoever will file it
7. Which of the following statements is true as regards a void contract?
a. A void contract may be ratified by the acceptance by a party to the contract of a benefit under its
terms
b. The right to set up the defends of illegality of a void contract maybe waived if the illegality is not
raised within a reasonable time
c. If a void contract is notated by a valid one such notation is valid
d. The right to set up the defence of illegality of a void contract is imprescriptible
8. It is contract by virtue of the terms of which the parties thereto promise and obligate themselves to enter
into another contract at a further time, upon happening of certain events, or the fulfilment of certain
conditions
a. Resolutory contract c. Suspensive contract
b. Option contract d. Auto-contact
9. Which of the following is a feature common to chattel mortgage and pledge?
a. Deficiency is recoverable in case of sale of the thing pledge/ mortgage
b. The object of the contract is a movable property
c. The excess of the proceeds of sale over the amount of the obligation of the belongs to the
pledgor/mortgagor
d. An affidavit of good faith is required to bind third persons
10. P appointed A as commission agent to sell’s goods for P10,000 cash. A however sold credit for P11,000
without P’s consent. Based on the foregoing facts, which of the following is correct?
a. P may demand immediate payment of P11,000 cash
b. P may demand immediate payment of P10,000 cash and collect P1,000 later
c. P may ratify the sale on credit for P11,000 and immediately demand P10,000 from A
d. A is entitled to the excess of P1,000 is P did not ratify the sale on credit
11. F made a telephone call to his son S, for S to sell F’s land. In the deep of absolute sale which was
acknowledged before a notary public, S signed as agent of F. Later, in the presence of two witnesses, F
ratified the sale executed by S. Which is correct?
a. The sale was void at the start but was validated upon the ratification by F
b. The sale remained void despite the ratification by F
c. The sale was valid from the start since it was made in a public instrument and F, the owner ratified
the sale
d. The sale was merely unenforceable at the start but the ratification validated the contract
12. A bought a residential house and lot from B Realty for P2M giving a down payment of P200,000 and
promising to pay the balance of P1.8M in 15 years in monthly instalments of P10,000. After paying 72
instalments A defaulted in the payment of subsequent instalments. Despite the grace period given, he was
not able to make any further payments. Accordingly, B Reality cancelled the sale. How much cash
surrender value is a entitled to receive?
a. P552,000 c. P462,000
b. P396,000 d. P506,000
13. A sum of money paid, or a thing delivered upon the making of a contract for the sale of goods to bind the
offer, the delivery and acceptance of which makes the final assent of both parties to the contract
a. Option money c. Discount
b. Arms d. Deposit
14. A promised to give B P1, 000 if B will hear mass for ten consecutive Sundays. This is a
a. Civil obligation c. Moral obligation
b. Natural obligation d. Religious obligation
15. A promissory note reads “I promise to pay B P100,000 on Oct. 30, 2012. Sgd. A “. B transferred the note to
C. later, X note the promissory note and transferred the note to Y who received the note in good faith. On
maturity date, Y presented the note to A and demanded payment. A paid the note in good faith. In this case
a. C can recover from A c. A’s obligation is extinguished
b. C can recover from B d. C can recover only from either X or Y
16. A sells to B a Sony colored TV for P12,000 payable in twelve equal monthly instalments beginning May 5,
2012 and every 5th day of each month thereafter. The contract provides that upon failure to pay any
instalment due, the whole balance becomes due and demandable. To secure the obligation, a chattel for
the payment of the TV set was executed. When B defaulted on the seventh and eight instalments, A sued
B for the payment of the whole balance of P6,000. The TV set was levied and subsequently sold at a public
sale for P5,000. Can A still recover the deficiency of P1,000 from B?
a. Yes, if there was stipulation to that effect
b. Yes, even though there was no stipulation
c. No, any stipulation allowing recovery is void
d. No, if there was no stipulation to that effect

17. A pledged his ring to B for P20,000. A failed to pay his obligation. B sold it at a public auction for P18,000.
Can B recover the deficiency?
a. Yes, even without stipulation c. No, even if there is stipulation
b. Yes, if there is stipulation d. No, unless there is stipulation
18. Using the above data, if the sale is P22,000. Can A recover the excess?
b. Yes, if there is stipulation d. No, if there is stipulation
19. C mortgaged his car to B for P200,000. C failed to pay his obligation. B sold it at a public action for
P180,000. Can B recover the deficiency?
b. Yes, only if there is stipulation d. No, if there is stipulation
20. Using the above data, if the sale is for P220,000, can C recover the excess?
b. Yes, only if there is stipulation d. No, unless there is stipulation
21. Essential elements of pledge, except
a. Pledgor is the absolute owner of the thing pledged
b. The person constituting the pledge has the free disposal of his property or if he is an agent or
representative, that he is legally authorized
c. The thing pledge must be placed in the possession of the creditor or of a 3 rd person by common
agreement
d. To bind third persons there must be an affidavit of good faith
22. Essential elements of chattel mortgage, except
a. The object is a personal or movable property
b. The thing mortgage is not delivered to the creditor
c. The mortgagor cannot sell without the consent of the mortgage
d. Description of the thing mortgage must appear in a public instrument
23. Essential elements of real estate mortgage, except
a. In case of foreclosure sale, the mortgage is entitled to the
b. The mortgage can sell even without the consent of the mortgage
c. The thing mortgaged must be delivered to the creditor
d. To bind third persons it must be recorded in the Registry of Property
a. If the thing pledged is returned by the pledge to the pledgor, the obligation is extinguished
b. In sale at public auction, the pledgor may bid and his bid is valid even if he is the only bidder
c. Any stipulation authorizing the pledge to appropriate the thing pledged is void and without effect
d. Shares of stock can be the object of pledge or mortgage
a. Third persons who are not parties to the principal obligation cannot give as security in pledge their
property to answer the principal obligation
b. An unregistered chattel mortgage is valid upon the parties but void as to innocent third persons
c. Pledge is a consensual contract and is perfected from the time the thing pledged is delivered to the
creditor
d. In mortgage, the mortgage is entitled to the entire proceeds of the sale of the thing mortgaged
26. Which of the following contracts is not void ab initio?
a. That whose object is outside the commerce of men
b. That whose object did not exist at the time of transaction
c. That which contemplates an impossible service
d. That which is undertaken in fraud of creditor
27. This contract is not perfected until the delivery of the object of the obligation
a. Contract of sale c. Contract of deposit
b. Contract to make a pledge d. Contract to make a commodatum
28. As a rule, when a creditor assigns his credit in good faith.
A. He warrants the existence of the credit at the time of assignment
B. He warrants the legality of the credit at the time of assignment
C. He warrants the solvency of the debtor at the time of assignment
a. Only A and C c. Only B and C
b. Only A and B d. A,B and C
29. An agricultural land is owned by A and D pro-indiviso. D sells his ½ part to R, who is the owner of the adjoining
land. When A learned of the sale, he tried to redeem to portion sold by D by reimbursing R with the purchase
price and expenses. Which is not correct?
a. A can compel R to permit redemption
b. A co-owner of a thing may exercise the right of redemption in case the shares of the other co-owners or
any one of them are sold to a third person
c. The sale to R is valid but A can elect to exercise his right of redemption
d. The sale to R is valid and as adjoining land owner hi is the one entitled to redemption

30. A owes B P10,000 with 12% interest. B owes C P1.200. it was agreed between A and B that A would give
the interest of P1,200 to C and C communicated his acceptance of the stipulation between A and B. there
is
a. Stipulation pour atrui c. Compensation
b. Pactum commissorium d. Assignment
31. A, B and C are solidary debtors sharing at 1:2:3 of solidary creditors W and Y sharing at 1:2. The obligation
is P12,000. If B is a minor and C is insolvent and W condones the obligation of A without the consent of Y,
how much can W collect from A?
a. P8,000 c. P2,000
b. P6,000 d. P0
32. Using the above information, how much can Y collect from A?
a. P4,000 c. P2,000
b. P6,000 d. P0
33. A is obliged to give B either objects No.1 or No.2 or No.3 at A’s option. Before A communicated his choice
to B, object No.1 had been destroyed, thru A’s fault and object No.2 had been destroyed by a fortuitous
event. B may
a. Demand object No.3 only as it is still available
b. Demand the price of object No.1 only plus damages because it was destroyed by A’s fault
c. Demand the value of object No.1 or object No.3 but without damages
d. Demand either object No.3 or the price of object No.1 plus damages
34. Which of the following is a valid stipulation?
a. A promises to give B P10,000, and if A fails, A will allow B to have sexual intercourse with her
b. A will give B P10,000, if B will kill C
c. A agreed to give B a house and lot if B will be his mistress
d. A agreed to put poison on the food of B’s wife and if A fails, to pay B P10,000 for damages
35. A,B and C are solidarily indebted to D for P9,000 representing the purchase price of 1 gram of shabu but
A’s consent has been obtained by violence and intimidation, and B is a minor. How much can D collect
from C?
a. P9,000 c. P3,000
b. P6,000 d. P0
36. A cash dividend of P100,000 received by a taxpayer in 2011 from a domestic corporation whose income
from Philippine source is 40% of its total income is
a. Partly taxable if the is a resident citizen c. Partly taxable if he is a resident alien
b. Exempt from final tax it he is a non d. Taxable in full if he is a non-resident
resident citizen citizen
37. A cash dividend of P100,000 received by a taxpayer from a foreign corporation whose income from
Philippine source is 50% of its total income is
a. Exempt from income tax if it is a domestic corporation
b. Exempt from income tax if it is a foreign corporation
c. Taxable in full if he is a resident citizen
d. Taxable in full if he is a resident alien
38. As to scope of legislature power to tax, which of the following is correct?
a. The power to tax supreme, plenary, comprehensive and without any limit because the existence of
the government is a necessity
b. The discretion of Congress in imposing taxes extends to the mode, method and kind of tax, even if
the constitution provides otherwise
c. Congress has the right to levy a tax of any kind at any amount at it sees fit, even in the absence of
any constitutional provision
d. The sole arbiter of the purpose for which taxes shall be levied is Congress, provided the purpose is
public and the courts may not review the levy of the tax to determine whether or not the purpose is
public
39. A resident citizen received a prize of P40,000. Which of the following statements is correct in connection
with the imposition of final tax on the prize?
a. The first P10,000 is part of taxable income while, the remaining P30,000 is subject to 20%final tax
b. The whole amount is part of taxable income
c. The whole amount of P40,000 shall be subject to 20% final tax
d. The first P10,000 shall be exempt from tax, the remaining P30,000 is subject to 20% final tax
40. Under this system, the amount of income tax withheld by the withholding agent is constituted as full and
final payment of the income tax due from the payee on the said income
a. Creditable withholding tax
b. Final withholding tax
c. Global tax system
d. Scheduler tax system
41. A domestic corporation has the following data for 2012:
Excess MCIT 2011 – P15,000
O1 02
Income net of 1% withholding tax P495,000 P792,000
Deductions P480,000 700,000
How much is the income tax still due and payable in the second quarter?
a. P3,000 c. P18,000
b. P4,000 d. (P2,000)
42. Statement1- is a co-ownership taxable? Yes, because although the activities of the co-owners are limited
to the preservation of the property they derived income there from
Statement2- is the share of a co-owner taxable? No, because each co-owner is taxable individually on his
distributive share in the net income of the co-ownership
a. Both statements are correct c. Only Statement 1 is correct
b. Both statement are wrong d. Only Statement 2 is correct
43. Jun Jon and Company, a general co-partnership has the following data income and expenses for 2012:
Gross income - P 2,400,000
Expenses - 1,000,000
Dividend received from a domestic corporation - 90,000
Interest on bank deposit (net) - 10,000
Partners Jun and Jon share profits and losses in the ratio of 80% and 20%, respectively .The income tax
payable by the partnership is
a. P420,000 c. P447,000
b. P450,000 d. P423,000
44. The taxes withheld on the respective share of Jun and Jon in the 2012 partnership income are
a. Jun – P78,400 and Jon – P19,600 c. Jun – P129,600 and Jon – P21,600
b. Jun – P117,600 and Jon – P19,600 d. Jun – P86,400 and Jon – P21,600
45. A Marketing incurred the following expenses in relation to its business during the taxable year:
Provision for bad debts P 15,000
Research and development cost, treated as differed expense 500,000
Contributions during the year:
To the government for priority programs in sport 50,000
To the government for public purposes 10,000
To the Catholic church for charitable purposes 25,000
a. Allowance for doubtful accounts per aging of accounts receivable a beginning and ending balance of
P20,000 and P30,000, respectively
b. Accumulated depreciation on machine at the beginning and end of the year amounted to 100,000
and P110,000, respectively
c. During the year the firm sold a machine with a cost and accumulated depreciation of P300,000 and
P30,000, respectively
d. The research and development cost was incurred in the preceding year but the benefit was received
during the taxable year
e. Taxable income before a to d and contributions amounted to P300,000
If A Marketing is a sole proprietorship the allowance before personal exemptions
a. P80,000 c. P70,000
b. P85,000 d. P65,000
46. Furthermore the amount of taxable income before personal exemptions
a. P220,000 c. P130,000
b. P89,000 d. P115,000
a. Compensation income of individuals that do not exceed the statutory minimum wage is exempt from
the requirement of withholding tax on compensation
b. Compensation income of individuals that do not exceed ten thousand pesos per month is exempt
from the requirement of withholding tax on compensation
c. Holiday pay, overtime pay, night shift differential pay and hazard pay received by individuals shall be
exempt from income tax
d. Minimum wage earners who are receiving on the statutory minimum wage are not subject to
withholding tax and consequently to income tax

a. The monetized value of unutilized vacation leave credit of ten (10) days or less which were paid to
the employee during the year are not subject to income tax and to withholding tax
b. The salary of an employee on vacation or on sick leave, which are paid not with standing his
absence from work, constitutes compensation income, except if not more than 10 days.
c. Any amount which is required by law to be deducted by the employee’s compensation and is
deemed to be paid to the employee as compensation at the time the deduction is made
d. If living quarters or meals are furnished to an employee for the convenience of the employee, the
value thereof should be included as part of compensation income
49. On January 1, 2011, A leased his vacant lot for a period of 12 years at p240,000 per year. it was agreed
that the lessee will pay the following.
a. Rent of P480,000 (for 2011 and 2012)
b. Security deposit of P240,000
c. Real property tax at P20,000/year
The lease contract provides among others that the lessee will construct a 3-storey building for parking
purposes at a cost of P3,600,000 which shall belong to the lessor upon expiration or termination of the
lease. The building was completed on July 1, 2011, with an estimated useful life 15 years. A shall
report for the year 2011, using the spread-out method a total income from lease of
a. P296,543 c. P536,521
b. P573,087 d. P333,087
50. Using the above data the lessee in 2011 can deduct total expenses amounting to
a. P656,521 c. P416,521
b. P553,043 d. P573,043
51. Recovery of bad debt written off by a taxpayer:
No. 1: P20,000 from accounts written off in a year which had a net income of P200,000 before
write-off.
(write-off of the year was P20,000);
No. 2: P5,000 from written off in a year which had a net loss before write-off of P36,000
(write-off for the year was P5,000);
No. 3: P10,000 from written off in a year which had a net income of P8,000 before write-off.
(write-off for the year was P12,000);
The income from the bad debt recovery is:
a. P35,000 c. P26,000
b. P20,000 d. P30,000
52. XYZ, a domestic corporation was determined to be improperly accumulating its earning for the taxable year
2012 based on its records as follows:
a. Net income from business P 1,000,000
b. Dividends actually or constructively paid 150,000
c. Income tax paid for the year 270,000
d. Income subjected to 20% final tax (net) 60,000
e. Income exempt from tax 50,000
f. Income excluded from gross income 10,000
g. Net operating loss (2011) 100,000
The tax on improperly accumulated earning is
a. P81,500 c. P80,000
b. P71,500 d. P70,000
53. An individual taxpayer, single, has the following data for the current year:
Ordinary income P 150,000
Long term capital gain 40,000
Short term capital loss 10,000
How much is the net taxable income

a. P100,000
b. P135,000
c. P140,000
d. P110,000

54. Mabuhay Corporation organized in 2010 has the following data:
2011 2012
Sales P1,700,000 P 2,300,000
Cost 1,700,000 1,425,000
Operating expenses 615,000 480,000
The income tax payable in 2011 is
a. P13,000 c. P10,500
b. P5,250 d. P12,250
55. Using the above data, the income tax payable by Mabuhay Corporation in 2012 is
a. P118,500 c. P116,000
b. P110,750 d. P105,500
56. A, a resident taxpayer received the following during the taxable year:
I. P12,000 cash received has refund of excess insurance premiums paid to an insurance company
II. P40,000 worth of goods as prize in “Beer-Gin” talent search
III. A computer unit with a fair market value of P48,000 which was awarded to him in recognition of his
outstanding achievement in scientific research
IV. P25,000 salary per month as an accounting supervisor
Which of the above items is (are) exclusion from taxable income subject to graduated rates?
a. II only c. I,II and III
b. I and II d. I and III
57. Statement 1 – Government owned and controlled corporations are subject to tax unless expressly
exempted.
Statement 2 - Government agencies performing governmental and proprietary function are exempt
from tax unless expressly taxed
a. True, true c. True, false
b. False, false d. False, true
58. It is aspect of taxation that is administrative in character and the power to exercise it is vested on the
Department of Finance.
a. Levying c. Imposition
b. Collection d. Legislation
59– 60 Mr. C, single, presented to you the following items of income for the taxable year:
a. Salary as part time instructor (net of P1,400 w/tax) - P18,600
b. Honorarium as member of the Board of ABC Corp. - P10,000
c. Rental income of apartment house he purchased using his income
from salary and professional fees - P12,000
d. Interest income from PNB
On deposit maintained under the expanded foreign
currency deposit system (net) - $200
On savings deposit (net) - P4,000
e. Compensation income received as a CPA - P25,000
f. Royalty income from book publication - P30,000
g. Prizes received from supermarket raffle - P12,000
h. Winning from PCSO - P100,000
i. Compensation for injuries suffered in an accident - P20,000
th
j. Bonus and 13 month pay - P10,000
59. The taxable income after exemption of Mr.C is
a. P52,000 c. P22,000
b. P17,000 d. P32,000
60. If Mr. C is married, his taxable income after exemption is
a. P11,000 c. P4,500
b. P17,000 d. P3,100
61 – 62. A ,single, 49 years old with 2 qualified dependent illegitimate children, presented the following
data regarding the items in come he earned during the taxable year:
A. Rental income
From a commercial land in USA - P480,000
From a residential land in Makati - P360,000
B. Royalties from books
Published in USA - P120,000
Published in the Philippine - P180,000
C. Interest income on notes receivable
The debtor resides in USA - P60,000
The debtor resides in the Philippines - P72,000
D. Interest income from Philippines Bank
On Peso Currency bank deposit (gross) - P80,000
On Foreign Currency bank deposit (gross) - P100,000
E. Dividend income from two resident foreign corporation where
the gross income from the Philippines for the past three years
were equivalent to:
40% of its world income -P60,000
60% of its word income -P40,000
F. Prizes and awards received from:

Supermarket raffle
From the Philippines – ABC Grocery -P8,000
- DEF Superstore -P10,000
- CHI Mart - P12,000
From USA – KLM Bazaar -P9,000
- NOP Mall P11,000
Ramon Masaysay Award
P100,000
Nobel Peace Prize P150,000
G. Prizes and winnings from: -
PCSO P400,000
USA Lotto P100,000
Mahjong and Pusoy Games P10,000
H. Proceeds of life insurance of his
Mother where A was designated as revocable beneficiary P1,000,000
Father where A was designated as irrevocable beneficiary P2,000,000
I. Retirement benefits from his employer after rendering
Service for 30 years P1,200,000
J. Net profit from merchandising business
From the Philippines P300,000
From USA P200,000
K. Compensation for injuries and damages

Actual medical and hospital expenses P100,000
Moral and exemplary P50,000
Lost profits P20,000
L. Sale of shares of stock of a domestic corporation
Directly to the buyer, Selling Price P300,000
Cost P120,000
Thru the stock exchange, Selling Price P200,000
Cost P210,000
M. Sale of pieces of jewelry held as capital assets
Acquired 10 years ago, Selling Price P140,000
Cost P80,000
Acquired this year, Selling Price P200,000
Cost P210,000
61. If A is a resident citizen, his net taxable income (subject to graduated rates) is
a. P2,980,000 c. P2,780,000
b. P1,780,000 d. P2,770,000
62. If A is a non-resident citizen, his net taxable income (subject to graduated rates) is
a. P1,924,000 c. P1,724,000
b. P1,940,000 d. P1,914,000
63. Which of the following is subject to 10% final tax?
a. P10,000 interest income c. P10,000 raffle prize
b. P10,000 royalty from a mining claim d. P10,000 royalty from a song composition
64. The deduction allowed for the payment of premium on health insurance during the taxable year by a
resident citizen amounting to P3,000 for the months from August to December is
a. P3,000 c. P1,000
b. P2,000 d. P1,250
65. Proceeds of life insurance, if the estate is the beneficiary is
a. Part of gross income if revocable
b. Part of gross income if irrevocable
c. Part of gross income regardless of whether revocable or irrevocable
d. Not part of gross income
66. Which of the following are elements of impact of taxation?

I. Levy III. Assessment
II. Imposition IV. Collection
a. I only c. II and III
b. I and II d. III only
67. Which of the aspects of taxation is (are) administrative in nature?
I. Levy II. Assessment III. Collection
a. I only
b. I and II
c. II and III
d. III only
68. A sold his residential land, a capital asset for P2,000,000. It was acquired in 1990 at a cost of P1,500,000.
The fair market value as determined by the BIR is P2,200,000 but the fair market value shown in the
schedule of values of City Assessor is P1,950,000. The entire proceeds were utilized for the acquisition of
A’s principal residence. The final tax due is
a. P120,000
b. P132,000
c. P117,000
d. P0
69. Using the above data, but only P1,600,000 was utilized for the acquisition of A’s principal residence, the
final tax due is
a. P24,000
b. P26,400
c. P120,000
d. P132,000
70. Acting on the information giving by A, the government seized and confiscated smuggled goods with a fair
market value of P1.5M A’s reward will be
a. P1.5M which is part of his taxable income
b. P1.5M which is subject to 10% final tax
c. P1M which is exempt from tax
d. P1M which is subject to 10% final tax



Tel. No.: (033) 320-2728; 09106547262
PRACTICAL ACCOUNTING 1
your answer.
4. AVOID ERASURES.
INSTRUCTIONS:
2. Write the subject title “PRACTICAL ACCOUNTING I” on the box provided.
__________________________________________________________________________________________
1. Cocoa Company reported operating expenses in two categories, namely selling and general and
administrative. The adjusted trial balance on December 31, 2013 included the following expense
accounts:
Accounting and legal fees 140,000

Advertising 120,000
Freight out 75,000
Interest expense 60,000
Loss on sale of long-term investments 30,000
Officers’ salaries 180,000
Rent for office space 180,000
Sale salaries and commissions 110,000
Research and development expense 400,000
One-half of the rented premises is occupied by the sales department. What total amount of the
expenses should be included in general and administrative expenses for 2013?
a.410,000 c. 470,000
b.440,000 d.810,000
2. Ruthless Company reported the following events and transactions during 2013?
Depreciation for 2011 was understated by P300,000.

A litigation settlement resulted in a loss of P250,000.
The inventory on December 31, 2011 was overstated by P400,000.
The entity disposed of its recreational division at a loss of P500,000.
The income tax rate is 30%. What is the effect of these events and transactions on 2013 income from
continuing operations, net of tax?
a.175,000 c. 525,000
b.385,000 d.665,000
3. Klumps Company owned the following investments at year-end before fair value adjustments and
amortization:
Financial assets at fair value through profit or loss 600,000
Financial assets at fair value through OCI 350,000
Financial assets at amortized cost 470,000
What total amount of noncurrent assets be reported at year-end?

a.1,070,000
b.950,000
c. 820,000
d.820,000 or an amount greater or less depending on the circumstances.
4. Wacko Company provided the following data on December 31, 2013:
Cash in bank, net5 of bank overdraft of P500,000 5,000,000

Petty cash (unreplenished petty cash expenses, P10,000) 50,000
Trade notes receivable, including discounted note of P1,000,000
accounted for as a conditional sale. 4,000,000
Accounts receivable, net of accounts with credit balances of P1,500,000 6,000,000
Inventory 3,000,000
Bond sinking fund 2,000,000
Deferred charges 250,000
Accounts payable, net of accounts with debit balances of P1,000,000 7,000,000
Trade notes payable 4,000,000
Bonds payable due on June 30,2014 2,000,000
Accrued expenses 500,000
What amount should be reported as total current assets on December 31, 2013?
a. 20,040,000 c. 20,050,000
b. 22,040,000 d. 22,290,000
5. Maricel Company has three manufacturing divisions, each of which has been determined to be a reportable
segment. Common costs are appropriately allocated on the basis of each division’s sales in relation to
entity’s aggregate sales. In 2013, Division I had sales of P10,000,000, which was 20% of the entity total
sales, and has traceable operating costs of P6,000,000. In 2013, the entity incurred costs of P2,000,000
that were not directly traceable to any of the divisions. These costs included general corporate expenses of
P500,000. In addition, the entity incurred interest expense of P500,000 which was directly traceable to
Division I in 2013. Information about interest expense is regularly provided to the chief operating decision
maker. What amount should be reported as operating profit of Division I for 2013?
a. 4,000,000 c. 3,600,000
b. 3,700,000 d. 3,200,000
6. Brod Company has historically reported bad debt expense of 10% of sales in each quarter. For the current
year, the entity followed the same procedure in the three quarter of the year. However, in the fourth quarter,
the entity determined that bad debt expense for the entire year should be P900,000. Sales were
P2,000,000 for first quarter, P1,500,000 for second quarter, P2,500,000 for third quarter, and P4,000,000
for fourth quarter. What amount of bad debt expense should be recognized for the fourth quarter?
a. 900,000 c. 400,000
b. 300,000 d. 600,000
7. Amen Company incurred an inventory loss from market decline of P800,000 on March 31, 2013. The
market decline is expected to recover during the year. One June 30, 2013, the net realizable value of the
inventory increased by P900,000. What amount of gain should be reported in the quarterly income
statement ending June 30, 2013?
a. 900,000 c. 100,000
b. 800,000 d. 0
8. Lure Company purchased equipment for P5,750,000 on January 1, 2012 with a useful life of 10 years and
no residual value. On January 1, 2014, the entity classified the equipment as held for sale. The fair value of
the equipment on such date is P3,795,000 and the cost of disposal is P115,000. On December 31, 2014,
the fair value of the equipment is P4,370,000 and the cost of disposal is P230,000. On December 31, 2014,
the entity determined that the criteria as held for sale can no longer be met and decided not to sell the asset
but continue using it. What amount should be recognized in profit or loss as a result of the reclassification in
2014?
a. 920,000 c. 345,000
b. 460,000 d. 0
9. Louise Company’s bank statement for the month of April included the following information:
Bank service charge for April 13,000

Check deposited by the entity during April marked “NSI” by the bank and returned 40,000
Deposits made but not yet recorded by bank 132,400
Checks written and mailed but not yet recorded by bank 98,700
All deposits in transit and outstanding checks have been properly recorded by the entity. A customer check
for P35,000 payable to Louise Company had not yet been deposited and had not been recorded. The bank
account balance per ledger P921,300. What amount should be reported as cash on April 30?
a. 903,300 b. 955,000
c. 834,600 d. 990,000
10. On July 1, 2013, Shane Company sold P750,000 of accounts receivable to a finance entity. The
finance entity assessed a finance fee of 4% and retained a holdback of 12%. On December 15, 2013,
the entity assigned P2,500,000 as a collateral on a P2,000,000 12% annual interest rate bank loan.
The bank assessed a 5% service charge on the amount of the loan. On December 31,2013, the
allowance for bad debts before adjustment is P32,000 and the balance of accounts receivable,
excluding the factored and assigned accounts is P500,000. No assigned accounts have been collected
by the end of the year. What total amount was initially received from the financing of accounts
receivable?
a. 2,530,000 c. 3,530,000
b. 2,505,000 d. 2,620,000
11. Wall Company has significant accounts from three customers, P480,000 due from Step Company,
P900,000 due from War Company, and P760,000 due from Hall Company. The entity has other
accounts receivable totalling P440,000. The entity determined that the War receivable is impaired by
P160,000 and the Hall receivable is impaired by P200,000. The receivable from Step is not impaired.
The entity determined that a composite rate of 5% is appropriate to measure impairment on al: other
accounts receivable. What is the total impairment of accounts receivable in the current year?
a. 382,000 c. 406,000
b. 314,000 d. 360,000
12. On December 31,2013, Bred Company’s ending inventory was P3,000,000 and the allowance for
inventory write down before any adjustment was P150,000. Relevant information on December 31,
2013 follow:
Product Cost Replacement cost Sales price NRV Normal profit

1 800,000 900,000 1,200,000 550,000 250,000
2 1,000,000 1,200,000 1,300,000 1,100,000 150,000
3 700,000 1,000,000 1,250,000 950,000 300,000
4 500,000 600,000 1,000,000 350,000 300,000
What amount of loss on write down is included in cost of goods sold for 2013?
a. 50,000 c. 400,000
b. 200,000 d. 250,000
13. The balance in Thunder Company’s accounts payable account on December 31, 2013 was P700,000
before any necessary year-end adjustments relating to the following:
 Goods were in transit Thunder from a vendor on December 31, 2013. The invoice cost was
P40,000. The goods were shipped “Free Alongside” on December 29, 2013 and were
received on January 4, 2014.
 Goods shipped “Ex-ship” on December 21,2013 from a vendor to Thunder were received on
January 6, 2014. The invoice cost was P25,000.
 On December 27, 2013, Thunder wrote and recorded checks to creditors totalling P30,000 that
were mailed on January 10,2014.
What amount of accounts payable should be reported on December 31, 2013?

a. 730,000 c. 765,000
b. 740,000 d. 770,000
14. Bugs Company harvested wool on July 1, 2013. On such date. The fair value less cost of disposal at
the point of harvest is P650,000. On December 31, 2013, the wool was still on had and its fair value
less cost of disposal and net realizable value were P700,000 and P600,000 respectively. What amount
should be recognized as gain on agricultural produce in 2013?
a. 150,000 c. 650,000
b. 100,000 d. 600,000
15. On January 1, 2013, Spike Company purchased 1,600 ordinary shares of Lee Company for P528,000.
During the year, Lee paid a cash dividend of P13 per share. On December 31, 2-13. Lee shares were
selling for P380 per share. Spike purchased the shares and irrevocably designated to classify them at
FVTOCI. On October 1, 2014, Lee shares were selling at P400 per share. No dividends were declared
by Lee in 2014. What amount of unrealized gain on the investment should be recognized in the 2014
statement of changes in equity?
a. 80,000 c. 40,000
b. 56,000 d. 16,000

16. True Company purchased P1,000,000 of 8% bonds of Blue Company on January 1, 2013, at a
discount, paying P922,780. The bonds mature on January 1, 2018, and yield 10% and interest is
payable each January 1 and July 1. The entity has a business model whose objective is to hold assets
in order to collect contractual cash flows and the contractual terms of the financial asset provide
specified dates with regard to cash flows that are solely payments of principal and interest. On
December 31, 2013, the market rate of interest is 12%, and the fair value of the bonds is P875,790 at
the 12% market rate. What amount should be recognized at interst income for 2013?
a. 92,278 c. 73,822
b. 92,585 d. 80,000
17. At the beginning of the year. Space Company purchased a 30% interest in Jam Company for
P6,000,000. Jam has 100,000 P100 par value ordinary shares outstanding. On purchase date, the
carrying amount of Jam’s net assets was P15,000,000 and that equipment with a 4-year remaining life
and inventory were undervalued by P4,000,000 and P2,000,000 respectively. During the year, Jam
earned net income of P3, 600,000 and paid dividends of P1,200,000. Only half of the inventory was
sold by Jam during the year. At the end of the year, the shares of Jam were trading on an organized
exchange for P220 per share. What is the investment income for 2013?
a. 1,080,000 c. 360,000
b. 480,000 d. 780,000
18. On January 1, 2013, Raptors Company purchased 25,000 shares of Game Company which represent
a 10% interest for P2,000,000. Raptor elected to measure the investment at FVTOCI. Game reported
net income of P4,000,000 and paid no dividends in 2013. The fair value of the investment was
P1,900,000 on December 31,2013. On January 1, 2014, Raptors paid P5,000,000 for 50,000
additional shares of Game Company. The fair values of the identifiable assets of Game Company
equalled carrying amount of P20,000,000 on purchase date expect for land whose fair value exceeded
carrying amount by P3,000,000. Game reported net income of P6,000,000 for 2014 and paid dividends
of P20 per share on December 31, 2014. What is the carrying amount of the investment on December
31, 2014?
a. 7,100,000 c. 7,200,000
b. 6,900,000 d. 5,200,000
19. Fire Company has the Philippine peso is Functional currency. The entity expects to purchased goods
from USA for $50,000 on March 31, 2014. Accordingly, the entity is exposed to a foreign currency risk.
If the dollar increase before the purchase takes places, the entity will have to pay more pesos to obtain
the $50,000 that it will have to pay for the goods. On October 1, 2013, the entity entered into a forward
currency contract with a bank speculator to purchase $50,000 in six months for a fixed amount of
P2,000,000 or P40 to $1. This forward currency contract is designated as cash flo3w hedge. On
December 31, 2013, the exchange rate is P43 to $1. On December 31, 2013, what amount should be
reported as derivative asset or liability?
a. 100,000 asset c. 100,000 liability
b. 150,000 asset d. 150,000 liability
20. At year-end, Candy Company reported cash and cash equivalents comprising cash on hand P500,000
demand deposit P4,000,000, certificate of time deposit P2,000,000, post dated customer’s check
P300,000 petty cash fund P50,000, travel’s check P200,000, manager’s check P100,000 and money
order P150,000. What total amount of “cash” should be reported at year-end?
a. 7,000,000 c. 6,800,000
b. 4,800,000 d. 5,000,000
21. Cane Company acquired a new equipment by exchanging an old equipment:
Equipment – old 5,000,000

Accumulated depreciation 4,000,000
Fair valve of old equipment 1,200,000
Cash received on exchange 500,000
What amount should be recorded as cost of the equipment received in exchange?

a. 1,200,000 c. 700,000
b. 1,700,000 d. 500,000

22. Cavs Company fabricated equipment for office use during the current year. The following data were
taken from the records:
Materials Direct Labor
Finished goods 1,000,000 1,500,000
Office equipment 600,000 500,000
Factory overhead amounted to P1,200,000. Normal production of finished goods is 50,000 units. Due to
the fabrication of office equipment, finished goods produced totalled 35,000 units only in the current
year. The office equipment is to be charged with the overhead which would have been apportioned to
the 15,000 units which were not produced. What is the total cost of office equipment?
a. 1,100,000 c. 1.460,000
b. 1,400,000 d. 2,300,000
23. Suns Company purchased land for P1,100,000. The entity paid P70,000 to tear down a building on the
land. Salvage was sold for P10,500. Legal fees of P6,500 were paid for title investigation and making
the purchase. Architect fees were P40,500. Title insurance was P4,500 P12,000. The contractor was
paid P1,357,000. A one-time assessment made by the city for sidewalks was P7,500. Suns installed
lighting and signage at a cost of P11,000. What is the total cost of the land?
a. 1,195,000 c. 1,103,000
b. 1,178,000 d. 1,006,500
24. On January 1, 2013, the city government provided Clippers Company a zero interest P3,000,000 loan
with a 3-year term. Interest is payable annually every December 31. The prevailing market rate of
interest for this type of loan is 8%. What amount of income from government grant should be
recognized in 2013? Round present value factor to 2 decimals,
a. 630,000 c. 240,000
b. 189,600 d. 210,000
25. Red Company is constructing a building. Construction began on January 1, 2013 and was completed
on December 31, 2013. The average expenditures in 2013 amounted to P3,200,000. The entity
borrowed P1,200,000 on January 1, 2013on a 5-year, 12% note to help finance construction of the
building. In addition, the entity had outstanding all year a 10%, 3-year, P3,000,000 note payable and a
12%, 4-ygear, P5,000,000 note payable. What amount should be charged to interest expense for
2013?
a. 369,000 c. 675,000
b. 900,000 d. 600,000
26. Grey Company purchased a machine on July 1, 2013 for P750,000. The machine had a useful life of
10 years with residual value of P42,000. During 2016, it became apparent that the machine would
become uneconomical after December 31, 2020, and that the machine would have no residual. What
is the charge for depreciation in 2016?
a. 106,200 c. 123,000
b. 114,600 d. 143,250
27. In January 2013, Cement Company purchased a mineral mine for P3,400,000 with removable ore
estimated at 2,000,000 tons. The property has an estimated value of P200,000 after the ore has been
extracted. The entity incurred P1,000,000 of development cost preparing the mine for production.
During 2013, 500,000 tons were removed and 400,000 tons were sold. What is the amount of
depletion that should be expensed in 2013?
a. 640,000 c. 840,000
b. 800,000 d. 1,120,000
28. Shot Company reported an impairment loss of P1,600,000 in 2012. This loss was related to an item of
property, plant and equipment which was acquired on January 1, 2011 with cost of P10,000,000,
useful life of 10 years no residual value. On December 31, 2012, the entity reported this asset at
P6,400,000 which is the fair value on such date. On December 31, 2013, the entity determined that the
fair value of the impaired asset had increased to P7,200,000. The straight line method is used. What
amount of gain on reversal of impairment should be reported in 2013?
a. 1,600,000 c. 600,000
b. 1,400,000 d. 0
29. On January 1, 2008. Hard Company purchased equipment at a cost of P6,000,000. Depreciation was
computed on the straight line basis at 4% per year. On January 1, 2013, the building was revalued at a
fair value of P8,000,000. The income tax rate is 30%. What is the revaluation surplus on December 31,
2014?
a. 2,128,000
b. 2,240,000
c. 2,880,000
d. 2,016,000
30. On May 1, 2013, Crimson Company exchanged 20,000 treasury shares of P25 par value for a patent
owned by Joker Company. The treasury shares were acquired in 2012 for P450,000. On May 1, 2013,
Crimson’s share was quoted at P34, and the patent had a carrying amount of P550,000. What is the
initial cost of patent?
a. 450,000
b. 500,000
c. 550,000
d. 680,000
31. During the current year, Squadron Company incurred the following costs:
Testing in search for process alternative 350,000

Cost of marketing research for new product 250,000
Modification of the formulation of a process 510,000
Research and development services performed by Blue Company for Squadron 425,000
What amount should be reported as research and development expense?

a. 1,535,000 c. 1,285,000
b. 1,185,000 d. 860,000
32. Sick Company acquired an oil rig for P20,000,000 on January 1, 2013. The life of the rig is 10 years
and the expected cost to dismantled the rig at the end of 10 years is P4,000,000. The entity is required
by law to dismantle the rig after 10 years. The appropriate discount rate is 10%. The PV of 1 at 10%
periods is 386. The discount on the liability for dismantling cost should be amortized using the effective
interest method. What total amount of expense should be reported for 2013 as a result of these
events?
a. 2,400,000 c. 2,800,000
b. 2,154,400 d. 2,308,800
33. Jenkins Company gives its customers coupons redeemable for a poster plus an audio CD. One
coupon is issued for each peso of sales. On the surrender of 100 coupons and P50 cash, the poster
and CD are given to the customer. It is estimated that 80% of the coupons will be presented for
redemption. Sales for 2013 were P7,000,000, and the coupons redeemed totalled 3,400,000. Sales for
2014 were P8,400,000, and the coupons redeemed totalled 8,500,000. Based on past experience,
coupons expected to be redeemed in one year will be redeemed in the next year. The entity bought
20,000 posters at P20 each and 20,000 CDs at P60 each. What is the premium liability on December
31, 2014?
a. 336,000 c. 126,000
b. 252,000 d. 84,000
34. Spizike Company had two issues of securities outstanding, namely ordinary shares and 8% convertible
bond issue in the face amount of P16,000,000. Interest payment dates of the bond issue are June 30
and December 31. The conversion clause entities the bondholders to receive forty ordinary shares of
P20 par value in exchange for each P1,000 bond. On June 30, 2014, the holders of P2,400,000 face
value bonds exercised the conversion privilege. The market price of the bond on that date was P1,100
and the market price of the share was P35. The total unamortized bond discount at the date of
conversion was P1,000,000 and the equity component when the bonds were issued was P1,200,000.
What amount should be credited to share premium-issuance as a result of this conversion?
a. 330,000 c. 660,000
b. 510,000 d. 480,000
35. Faints Company manufactures machinery used in the mining industry. On January 1, 2013, it leased
equipment with a cost of P2,000,000 to Gray Company. The 5-years lease calls for a 10% down
payment and equal annual payments of P732,600 at the end of each year. The equipment has an
expected useful life of 5 years. Gray’s incremental borrowing rate is 10%, and it depreciates similar
equipment using the double declining balance method. The cash selling price of the equipment is
P3,250,000, and the rate implicit in the lease is 8%, which is known to Gray. What is the lease liability
on December 31, 2013?
a. 2,777,400 c. 2,426,400
b. 2,192,400 d. 2,484,900
36. Atlanta Company prepared an aging of accounts receivable on December 31, 2013 and determined
that the net realizable value of accounts receivable was P5,000,000. The entity revealed the following
information for the current year:
Allowance for doubtful accounts - January 1 600,000
Accounts receivable – December 31 6,000,000
Accounts written off 800,000
Recovery of accounts written off 100,000
What amount should be recognized as doubtful accounts expense for the current year?
a. 1,100,000 c. 1,200,000
b. 1,000,000 d. 1,800,000
37. The 12% bonds payable of Motorboat Company had a carrying amount of P8,320,000 on December
31, 2013. The bonds, which had a face value of P8,000,000, were issued at a premium to yield 10%.
The entity used the effective interest method of amortization. Interest is paid on June 30 and
December 31. On June 30, 2014, the entity retired the bonds at 110 plus accrued interest. What is the
loss on retirement in 2014?
a. 800,000 c. 544,000
b. 480,000 d. 320,000
38. Rings Company is part of a major industrial group and is known to accurately disclose related party
transactions in its financial statements. Remuneration and other payments made to the entity’s chief
executive offer during 2013 were:
Annual salary 2,000,000

Share options and other share-based payments 1,000,000
Contributions to retirement benefit plan 500,000
Reimbursement of travel expenses for business trips 1,200,000
What total amount should be disclosed as “compensation” to key management personnel?

a. 3,500,000 c. 3,000,000
b. 4,700,000 d. 2,500,000
39. On December 31, 2013, a flood at Pamela Company’s only warehouse caused severe damage to its
entire inventory. Based on recent history, the entity has a gross profit of 25% of sales. The following
information is available from the records for the year ended December 31, 2013:
Inventory January 1 520,000

Purchases 4,120,000
Purchase returns 60,000
Sales 5,600,000
Sales returns 400,000
Sales allowances 100,000
A physical inventory disclosed usable damaged goods which can be sold for P100,000. Using the
gross profit method, what is the estimated cost of goods sold for the year ended December 31, 2013?
a. 3360,000 c. 3,900,000
b. 3,830,000 d. 3,825,000
40. Kaye Company leases and operates a retail store. The following information relates to the lease for the
year ended December 31, 2013.
 The store lease, an operating lease, calls for a base monthly rent of P15,000 on the first day of
each month.
 Additional rent is computed at 6% of net sales over P3,000,000 up to P6,000,000 and 5% of
net sales over P6,000,000 per calendar year.
 Net sales for 2013 amounted to P9,000,000.
 The entity paid executor costs to the lessor for property taxes of P120,000 and insurance of
P50,000
What total amount of the expenses relating to the store lease should be reported for 2013?
a. 710,000
b. 680,000
c. 540,000
d. 350,000



Tel. No.: (033) 320-2728; 09106547262
CERTIFIED PUBLIC ACCOUNTANT Licensure Examination
1. 410,000 A
2. 175,000 (250,000 X 70%) A
3. Depends on the fair value of the financial asset at FVTOCI and amortization
of financial asset at amortized cost D
4. 22,040,000 B
5. 3,200,000 (10,000,000 – 6,000,000 – 500,000) D
6. Bad debts for the year 900,000
Bad debts to date – 3rd quarter (6,000,000 x 10%) (600,000)
Bad debts in the 4th quarter 300,000B
7. Up to extent of P800,000 only B
8. Carrying amount 1!1!1!1(5,750,000 – 230,000) 4,600,000
Depreciation that would be recognized in 2014 (575,000)
Carrying amount – 12/31/14 as if not held for sale 4,025,000
FV less cost of disposal – 12/31/14 (4,370,00 – 230,000) 4,140,000
Measurement of equipment – lower amount 4,025,000

Carrying amount – 12/31/14 per book (3,680,000)
Gain on remeasurement 345,000C
9. 903,300 A
10. 2,530,000 A
11. War 160,000
Hall 200,000
Other receivables (480,000 + 440,000 = 920,000 x 5%) 46,000
Total impairment 406,000C
12. Required allowance for inventory writedown
(3,000,000 – 2,600,000) 400,000
Allowance before adjustment (150,000)
Loss on inventory writedown 250,000D
13. 770,000(700,000 + 40,000 + 30,000) D
14. 650,000 C
15. FV – 12/31/14(800 x 400) 320,000
HC (528,000 x ½) (264,000)
Cumulative unrealized gain 56,000B
16. 92,585(46,139 + 46,466) B
17. Cost 6,000,000
CA of net assets acquired (15,000,000 x 30%) (4,500,000)
Excess cost 1,500,000
Equipment (4,000,000 x 30%) (1,200,000)
Inventory (2,000,000 x 30%) (600,000)
Excess FV (300,000)
Share in NI (3,600,000 x 30%) 1,080,000

Amortization – equipment (1,200,000/4) (300,000)
Amortization – inventory (600,000/2) (300,000)
Excess FV 300,000
Investment income 780,000D
18. Cost (1,900,000 + 5,000,000) 6,900,000

Share in NI (6,000,000 x 30%) 1,800,000

Dividends received (20 x 75,000) (1,500,000)
CA – 12/31/14 7,200,000C
Total shares of Game (25,000/10%) 250,000

Additional interest (50,000 x 250,000) 20%
19. 100,000 asset (50,000 x2) A
20. 5,000,000 (500 + 4,000 + 50 + 200 + 100 + 150) D
21. 700,000(1,200,000 – 500,000) C
22. 1,460,000 (600,000 + 500,000 + 360,000) C
23. 1,178,000 B
24. PV of note payable (3,000,000 x 0.9) 2,370,000
Income from government grant (2,370,000 x 8%) 189,000B
25. 3,000,000 x 10% 300,000
5,000,000 x 12% 600,000
8,000,000 900,000
Average rate (900,000 / 8,00,000) 11.25%
Specific (1,200,000 x 12%) 144,000

General (2,000,000 x 11.25%) 225000
Capitalizable 369,000
Specific loan interest (1,200,000 x 12%) 144,000
General loan interest (3,000,000 x 10%) + (5,000,000 x 12%) 900,000
Actual interest cost 1,044,000
Capitalized interest (369,000)
Amount charged to interest expense 675,000C
26. 114,600 (573,000/5) B
27. 840,000(400,000 x 2.10) C
28. Carrying amount – 21/31/13 as if no impairment
(10,000,000 x 7/10) 7,000,000
Carrying amount – 12/31/13 with impairment
(6,400,000 – 800,000) 5,600,000
Gain on reversal of impairment loss 1,400,000B
29. FV – 1/1/13 8,000,000
CA – 1/1/13 (6,000,000 – 1,200,000) (4,800,000)
Revaluation surplus – 1/1/13 before taxes 3,200,000
DT liability (3,200,000 x 30%) (960,000)
Revaluation surplus – 1/1/13 after taxes 2,240,000
Realization in 2013 and 2014 (2,240,000/20 x 2) (224,000)
Revaluation surplus – 12/31/14 2,016,000D
30. 680,000(400,000 x 2.10) D
31. 1,285,000 (350,000 + 510,000 + 425,000) C
32. Original cost 20,000,000
PV of dismantling cost (4,000,000 x 0.386) 1,544,000
Total cost of the rig 21,544,000
Depreciation (21,544,000/10) 2,154,400
Interest expense (1,544,000 x 15%) 154,000
Total expense 2,308,800D
33. 126,000(4,200 x 30) C
34. Bonds payable 2,400,000
Share premium – conv. (1,200,000 x 15%) 180,000
Bond discount(1,000,000 x 15%) 150,000
Share capital (2,400 x 40 x 20) 1,920,000
Share - premium – issuance 510,000B
35. Lease liability – 1/1 ‘!3(3,250,000 x 90%) 2,925,000
Less: principal payment
Total payment 732,600
Interest (2,925,000 x 8%) 234,000 (498,600)
Lease liability – 12/31/13 2,426,000C
36. 1,100,000 A
37. 544,000 C
38. 3,500,000 A
39. 5,200,000 x 75% 3,900,000C
40. 680,000 B


Tel. No.: (033) 320-2728; 09106547262
PRACTICAL ACCOUNTING 2
your answer.
4. AVOID ERASURES.
INSTRUCTIONS:
2. Write the subject title “PRACTICAL ACCOUNTING II” on the box provided.
__________________________________________________________________________________________
1. Which of the following statements is incorrect?

a. The tax remittance advice is recorded by the agency by crediting subsidy income from National
Government
b. The gross payroll is advanced to disbursing offer and is recorded by crediting Cash – National
Treasury – Modified Disbursement System.
c. Upon payment of the office equipment on a account, Due to BIR account shall be credited for the
withholding tax
d. The unused NCA is to be reverted to the Bureau of Treasury by crediting the Cash – NT – MDS
account
2. Faith and hope, a private not-for-profit voluntary health and welfare organization, received the following
contributions in 2011:
I. P25,000 from donors who stipulated that the money not be spent until 2012.
II. P60,000 from donors who stipulated that the contributions be used for the acquisition of equipment,
none of which was acquired in 2011.
Which of the above events increased temporarily restricted net assets for the year ending
December 31, 2011?
a. I only c. II only
b. Both I and II d. Neither I nor II
3. On January 2, 2011, SD Company signed an agreement to operate as a franchisee of TQ Products ,.Inc,..
for an initial franchisee fee of P937,500 for 7 years. Of this amount, P175,000 was paid when the
agreement was signed and the balance payable in four annual payments beginning on December 31,
2011. SD signed a non-interest bearing note for the balance. SD’s rating indicates that he can borrow
money at 16% for the loan of this type. Assume that substantial services amounting to P283,500 had
already been rendered by TQ Products and that additional direct franchise cost of P25,5000 was also
incurred PV factor is 2.80.
If the collection of the note is not reasonably assured the net income for the year ended December 31,
2011 is
a. P313,435 c. P168,135
b. P228.035 d. P253,535
4. On August 1, 2012, PAUL Corp. Sold a price of land costing P1,350,000 at a gross margin of 66 2/3%
above cost. The buyer paid a 20% down payment and ,made four instalments of P90,000 each during the
same year. Using the instalment method of accounting, how much is the realized gross profit in 2012?
a. 180,000
b. 324,000
c. 486,000
d. 216,000
5. Tsup – Tsup Corporation filed a bankruptcy petition on January 2009. On March 1, 2009, the trustee
provided the following information about the corporation’s financial affairs:
Asset Book Value Realizable Value

Cash P40,000 P40,000
Accounts receivable – net 200,000 150,000
Inventories 300,000 140,000
Plant assets – net 500,000 560,000
Total Assets P1,040,000
Liabilities
Liabilities for priority claims P160,000
Accounts payable – unsecured 300,000
Notes payable, secured by
accounts receivable 200,000
mortgage payable, secured by all
plant assets 440,000
total Liabilities P1,100,000
The amount expected to be available for unsecured claims without priority

a. 300,000 c. 140,000
b. 580,000 d. 310,000
6. Krebs Crabs, Inc. Franchisor, entered into a franchise agreement with Liwayway Ligaya, franchisee, on
July 1, 2012. The total franchise fees agreed upon is P1,100,000, of which P100,000 is payable upon
signing and the balance in four equal annual instalments. It was agreed that the down payment is not
refundable, not withstanding lack of substantial performance of services by franchisor. When Kerbs
prepares its financial statements on July 31, 2012, the unearned franchise fees to be reported is:
a. 0 c. 1,000,000
b. 100,000 d. 1,100,000
7. On December 31,2009 entity A, an SME, acquired 30% of the ordinary shares that carry voting rights of
entity Z for P100,000. In acquiring those shares entity A. Incurred transaction of P1,000. Entity A has
entered into a contractual arrangement with another party (entity C) that owns 25% of the ordinary shares
of entity Z, whereby entities A and C jointly controlled entity Z. Entity A use the cost model to account for its
investments in JCE. A fair valuation of the investments in entity Z determined using a reliable earnings
multiple approach exists. In January 2010, entity Z declared and paid dividend of P20,000 out of profits
earned in 2009. No further dividends were paid in 2010, 2011 and 2012. At December 31, 2010, 2011 and
2012, management assessed the fair values of its investment in entity Z as P102,000, P110,000 and
P90,000, respectively. Costs to sell are estimated at P4,000 throughout. Entity A measures its investment
in entity Z on December 31, 2011 at?
a. P110,000 c. P106,000
b. 101,000 d. P95,000
8. On December 31, 2010, the following figures were taken the trial balances of Ayoshi
Cash P160,000 P40,000

Receivables 120,000 120,000
Inventory 200,000 140,000
Property and equipment – net 400,000 200,000
Goodwill --- 60,000
Current liabilities 40,000 20,000
Long – term liabilities 140,000 100,000
Common stock 220,000 200,000
Additional paid – in capital 40,000 ---
Retained earning 440,000 240,000
On December 312, 2010, Ayoshi issues 10,000 shares of its P10 par value stock for the net assets of
Misao. Ayoshi’s stock had a P34 per share fair market value. Ayoshi would also issue bond debentures
with face value of P200,000 maturing 3 years from date of issue. Discount related to the bonds issued
amounted to P40,000. Ayoshi also paid the following: P50,000 for broker’s fee, P40,000 for pre –
acquisition adult fee, P43,000 for legal fees, P36,000 for audit fee for SEC registration of stock issue and
P11,000 for printing of stock certificates. Misao hold an equipment that is wroth P80,000 more than its
current book value. The retained earnings of Misao on January 1, 2010 amounted to P140,000.

How much is the total combined assets after the merger?
a. P1,500,000 c. P1,280,000
b. P1,240,000 d. P1,320,000
9. On December 3, 2011, Jane Company purchased 70% of the outstanding shares of Jasmine Company for
P245,000. On that date, Jasmine Company had P100,00o of capital stock and P250,000 of retained
earnings. For 2012, Jane Company had income of P200,000 from its own operations and paid dividends of
P100,000. For 2012, Jane Company reported income of P200,000 from its own operations and paid
dividends of P100,000. For 2012, Jasmine Company have book value book values approximately equal
their book values.
The beginning inventory of Jane Company includes P6,000 of merchandise purchased from Jasmine
Company on December 31, 2011 at 150% of cost. The ending inventory of Jane Company includes P9,000
of merchandise purchased from Jasmine Company at the same mark up. Jane Company uses FIFO
inventory costing.
What is the non-controlling interest in Jasmine Company or the year ended December 31, 2012?
a. 117,000 c. 107,700
b. 110,700 d. 105,000
10. On January 2, 2011, Davao Corporation purchased 70% of the common stock of Cotabato Company for
P4,675,000. At that date, Cotabato had P4,887,500 of common stock outstanding and retained earnings of
P1,572,50. Cotabato’s equipment with a remaining life of 5 years had a book value of P2,380,000 and a
fair of P2,550,000. Cotabato’s remaining assets had book values equal to their fair values. All intangibles
except goodwill are expected to have remaining lives of 10 years. Non-controlling interest shall be
measured an fair value.
The income and dividend figures for both Davao and Cotabato are as follows:
Income Dividend
Davao: 2011 P1,572,500 P425,000
2012 1,785,000 510,000
Cotabato: 2011 340,000 85,000
2012 569,500 127,5000
Davao’s income as shown does not include any dividend income from Cotabato. Davao’s retained
earnings balance at the date of acquisition was P5,858,500.
On December 31, 2012, the consolidated retained earnings is:

a.P8,821,300 c. P8,993,850
b.P8,970,050 d.P29,017,650
11. Fish Ball Co. Charges P90,000 for a franchise with P18,000 paid when the agreement is signed and the
balance in four annual payments. The present value of the annual payments, discounted at 9% is
P58,315. The franchises has the right to purchase P20,000 of equipment for P16,000. If collectability of the
payments is reasonably assured and substantial performance by Fish Ball has occurred, what is the
amount of revenue from franchise fee that should be recognized?
a. 81,563 c. 78,315
b. 76,315 d. 72,000
12. PAX has the following foreign currency transaction during 2012:
Merchandise was purchased from a foreign supplier on Jan. 20, 2012 for the peso equivalent of P900,000.
The invoice was paid on March 31, 2012, at the equivalent of P960,000. On July 1, 2012, PAX borrowed
the equivalent of P5,000,000 equivalent by a note that is payable in the lender’s local
Currency on July 1, 2012. On Dec. 31, 2012, the equivalent of the principal amount and accrued interest
were P5,200,000 and P260,000 respectively. Interest on the notes is 10% per annum.
In the 2012 income statement of PAX what amount should be reported as foreign exchange loss?
a. 0 c. 270,000
b. 210,000 d. 80,000
13. ON Jan. 5, 2012, P sold to its 80% owned subsidiary, S Corp. , a machine for P120,000. At that time the
machine had a net book value of P90,000. S estimated the remaining life of the machine to be six years.
Assume that in 2012, P and S reported a profit of P80,000 and P100,000 respetively.
Determine the consolidated net income for 2013?

a. 119,000 c. 144,000
b. 155,000 d. 135,000
14. P owns 80% interest in ABC Corp. In the year 2010, the two firms reported profit own operations as
follows:
P 90,000
ABC 75,000
Record show that P shipped merchandise to ABC billed for P360,000 the cost is P300,000 and 20% of
these goods are not yet sold as of Dec. 31, 2012
ABC constructed a warehouse for P at a cost P120,000 and billed the latter for P150,000 on January 1,
2012. The asset has an estimated useful life of 5 years.
How much is the consolidated net income at the end of 2012?

a. 129,000 c. 141,000
b. 165,000 d. 118,800
15. D and EW entered into partnership on February 1, 2012 by the investing the following:
Diaz Esteban
D B
Cash 15,000
Inventory 45,000
Land 15,000
Building 65,000
Furniture and Fixture 100,000
The agreement between D and E provides that profits and losses are to on divided into 40% and 60% to D and
E, respectively. The partnership is to assume the P30,000 mortgage loan an the building.
Assuming that E invests P50,000 cash and each partner is to be credited for the full amount of the net assets
invested the total capital of the partnership is:
a. 210,000 c. 260,000
b. 250,000 d. 290,000
16. A,B and C decided to dissolve the partnership on Nov. 30, 2012. Their capital balances and profit ratio on
this date follow:
Capital D&E ratio

A P50,000 40%
B 60,000 30%
C 20,000 30%
The Net income from Jan to Nov. 30, 2012 is P44,000. Also on this date, cash end liabilities are P40,000
and P90,000 respectively. For A to receive P55,200 in full settlement of this interest in the firm, how much
must be realized from the sale of the firms non cash assets?
a. 177,000 c. 193,000
b. 187,000 d. 196,000
17. Harris Company has the following information for July:
Units started 100,000 units

Beginning Work in process:(35% complete) 20,000 units
Normal spoilage (discrete) 3,500 units
Abnormal spoilage 5,000 units
Ending Work in process:(70% complete) 14,500 units
Transferred out 97,000 units
Beginning Work in process Costs:
Material P15,000
Conversion 10,000
All material are added at the start of the production process. Harris Company insects goods at 75 percent
completions to conversation.

Assume that the costs per EU for material and conversion are P1.00 and P1.50, respectively. Using FIFO,
what is the total cost assigned to the transferred-out units (rounded to the nearest dollar)?
a. P245,750 c. P237,000
b. P244,438 d. P224,938
18. Palos Company opened its Cabu branch a year ago. At year end, the branch summarized operating data
as follows: Sales, P364,000. Shipments from home office, P148,500; Purchases, P137,500; Expenses,
P71,500; Ending inventory, P82,500 (of which P16,500 from outsiders); beginning inventory, P60,000 (of
which P45,000 came from office.)
The overstatement in branch cost of sales assuming shipments by home office are made at 20% Gross
Profit rate is:
a. P25,500 c. P16,250
b. P21,000 d. P21,250
19. The true net income of the branch is:
a. P45,250 c. P50,250
b. P50,000 d. P54,500
20. Nica provide the following information for the transaction occurred during August. The production plant
uses the JIT costing system.
- Raw materials costing P750,000 were purchased
- All direct materials costing P750,000 were requisitioned for production.
- Direct labor costs of P500,000 were incurred.
- Actual factory overhead costs amounted to P2,487,500.
- Applied conversion cost totalled P3,250,000. This includes the direct labor cost.
- All units are completed and immediately sold.
The total RIP used to be back flushed to FG and the adjusted COGS, respectively
a. P750,000; 3,737,500 c. 4,000,000; 3,737,500
b. 4,000,000; 4,262,500 d. 750,000; 4,262,500
21. A Corporation received a promissory note denominated in foreign currency from the sales made to a
Singaporean customer. The following were the transactions: (In Singapore Dollars). On December 1, A
Corporation sold merchandise to a Singaporean customer for 60-day, 12% promissory note for $32,000, at
a buying rate of $1 to P31.20. on December 31, the buying spot rate is $1 to P34.85. on January 30 the
buying spot rate is P33.75. on the settlement date how much is the forex gain or loss?
a. P35,552 gain c. P35,904 gain
b. P35,904 loss d. P35,552 loss
22. On November 1, 2009, Galaxy Philippines took delivery from a Thailand from of inventory costing 225,000
baht. Payment is due on January 30, 2010. Concurrently, Galaxy Philippines paid P2,025 cash to acquire a
90-day call option for 225,000 Thailand baht.
11/1/2009 12/31/2009 1/30/2010

Spot rate (market price) P1.20 P1.22 P1.23
Strike price (exercise price) 1.20 1.20 1.20
Fair value of call option P2,025 P4,950 P6,750
What is the intrinsic value and time value of option on December 31, 2009?
Intrinsic valueTime Value Intrinsic Value Time Value

A. P4,500 P450 C. P450 P4,500
B. 4,950 0 D. 0 4,950
23. SSS Company produces two products (A and B). Direct material and labor costs for Product A total P35
(35 (which reflects 4 direct labor hours); direct material and labor costs for product B total P22 (which
reflects 1.5 direct labor hours). Three overhand functions are needed for each product... product A uses 2
hours of function 1 at P10 per hour, 1 hour of function 2 at P7 per hour, and 6 hours of Function 3 at P18
per hour. Product B user 1, 8, and 1 hours of function 1, 2, 3, respectively. SSS 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
a. P88.64.
b. P123.64.
c. P135.00.

d. None of the responses are correct.
24. The following information is available from the Fitzgerald Company:
Actual OH P15,000
Fixed OH expenses, actual P7,200
Fixed OH expenses, budgeted P7,000
Actual hours 3,500
Standard hours 3,800
Variable OH rate per DLH P2.50
Assuming that Fitzgerald uses a three-away analysis of overhead variance, what is the overhead spending
variance?
a. P750 F c. P950 F
b. P750 U d. P1,500 U
25. The following March Information is available for Scott Manufacturing Company when it produced 2,100
units:
Standard:
Material 2 pounds per unit @ P5.80 per pound
Labor 3 direct labor hours per unit @ P10.00 per hour
Actual
Material 4,250 pounds purchased and used @ P5.65 per pound
Labor 6,300 direct labor hours at P9.75 per hour
What is the material price variance?

a. P637.50 U c. P630.00 U
b. P637.50 F d. P630.00 F
26. Light of Jesus operates a branch in Cagayan de Oro City. Selected accounts taken from Dec. 31, 2010
financial statements of light of Jesus and its branch follows:
Home Office Branch

Sale P6,900,000 P3,765,000
Shipments to Branch 4,750,000
Shipments from home office 2,187,500
Inventory, Jan, 1 800,000 120,000
Inventory, Dec. 31 640,000 250,000
Purchases 6,800,000 1,000,000
Allowance for overvaluation before 452,500
Adjustment
Expenses 356,000 250,000
The ending inventory of the branch includes P120,000 purchased from outside suppliers. The consolidated
net income is:
a. P1,791,500
b. P2,220,000
c. P2,218,00
d. P2,244,000
27. On December 31, 2005 a foreign subsidiary in Hongkong submitted the following balance sheet stated in
foreign currency:
Total assets $500,000

Total Liabilities 100,000
Common stock 250,000
Retained Earnings 150,000
The exchange rate are:
Current rate P3.40

Historical rate 3.10
Weight average 3.00

Assuming the functional currency of the subsidiary is the not the currency of the hyperinflationary economy
was used and the retained earnings of the subsidiary on December 31, 2005 translated to Peso is
P460,000. What amount of Cumulative translation adjustment is to be reported in the consolidated balance
sheet on December 31, 2005?
a. 25,000 c. 50,000
b. 10,000 d. 125,000
28. O company sold merchandise for 90,000 pounds from a vendor in London on November 1, 2009. Payment
in British pounds was due on January 30, 2010. On the same date, O entered into a 90 day futures
contract to sell 90,000 pounds from a bank. Exchange rate for pound on different dates are as follows:
Nov.1 Dec.31 Jan.31
Spot rate P71.4 P72.7 P71.9
30 day futures 72.3 72.5 73.2
60 day futures 71.8 72.2 72.6
90 day futures 70.6 72.6 73.4
How much is the net forex gain or loss on January 31, 2010?
a. P18,000 loss c. P9,000 loss
b. P18,000 gain d. P9,000 gain
29. PPP 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 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 P500.
If set-up cost is assigned on a volume basis for the department, what is the approximate per unit set-up
cost for Product Z?
a. P.010 c. P.040
b. P.036 d. None of the responses are correct
30. Uniform Company has developed standard overhead costs based on a capacity of 180,000 machine hours
as follows:
Standard costs per unit:

Variable portion 2 hours @ P3 = P6
Fixed portion 2 hours @ P5 = 10
P16
During April, 85,000 units were scheduled for production, but only 80,000 units were actually produced.
The following data relate to April:
Actual machine hours used were 165,000

Actual overhead incurred totalled P1,378,000(P518,000 variable plus P860,000 fixed).
All inventories are carried at standard cost.
The fixed overhead spending variance for April was:
a. P40,000 U c. P60,000 F
b. P40,000 F d. P60,000 U
31. Forrest Company uses a standard cost system for its production process and applies overhead based on
direct labor hours. The following information is available for August when. Forrest made 4,500 units:
Standard:
DLMH per unit 2.50
Variable overhead per DLH P1.75
Fixed overhead per DLH P3.10
Budgeted variable overhead P21,875
Budgeted fixed overhead P38,750
Actual:
Direct labor hours 10,000
Variable overhead P26,250
Fixed overhead P38,000
Using the two-variance approach, what is the controllable variance?
a. P5,812.50 U
b. P5,812.50 F
c. P4,375.00 U
d. P4,375.00 F
32. Ratcliff Company produces two products from a joint process: X and Z. Joint processing costs for this
production cycle are P8,000.
Disposal
Sales price Cost per Further Final sale
per yard at yard at processing price per
Yards split-off split-off per yard yard
X 1,500 P6.00 P3.50 P1.00 P7.50
Z 2,200 5.00 3.00 3.00 11.25
If X and Z are processed further, no disposal costs will be incurred or such costs will be borne by the buyer.
Using approximated net realizable value at split-off, what amount of joint processing cost is allocated to X
(round to the nearest dollar)?
a. P3,090
b. P5,204
c. P4,000
d. P2,890
33. Whale Company manufactures products X and Y from a joint process that also rears a by product, Z.
Revenue from sales of Z is treated as a reduction of joint costs. Additional information is as follow:
Products
X Y Z Total
Units produced 20,000 20,000 10,000 50,000
Joint costs ? ? ? P262,000
Sales value at
Slit-off P300,000 P150,000 P10,000
P460,000
Joint costs were allocated using the sales value at split-off approach. The joint costs allocated to product X
were
a. P84,000
b. P100,000
c. P150,000
d. P168,000
34. The following information is available for Hazel Company for April:
Started this month 80,000 units
Beginning WI
(40% complete) 7,500 units
Normal spoilage (discrete) 1,100 units
Ending WI
(70% complete) 900 units
Beginning Work in Process Costs:
Material P10,000units
Conversion 13,800 units
Current Costs:
Material P120,000units
Conversion 350,000units
All material are added at the start of production and the inspection point is at the end of the process.
What is cost assigned to ending unit for material using weighted average?
a. P1.49 c. P1.56
b. P1.63 d. P1.44
35. What is the cost assigned to ending inventory using FIFO?
a. P75,920 c. P56,42C
b. P58,994 d. P53,144
36. The following information is available for Mathis Company for the current year:
Beginning Work in process Costs of Beginning Work in process:
(75% complete) 14,500 units Material P25,100
Started 75,000 units Conversion 50,000
Ending Work in process current Costs:
(60% complete) 16,000 units Material P120,000
Abnormal spoilage 2,500 units Conversion 300,000
(continuous)
Transferred out 66,000 units

All materials are added at the start of production.
What is the cost per equivalent unit for material using weighted average?
a. P1.72 c. P1.77
b. P1.62 d. P2.07
37. V and A are partners having capital balances of P150,000 and P180,000, respectively, and sharing profits
and losses equally. They admit 1. to a 1/3 interest in the partnership capital and profits for an investment of
P195,000. If the asset revaluation method is used in recording the admission of the partnership.
a. L capital will be P175,000 c. A capital will be P210,000
b. Total capital will P525,000 d. Asset revaluation will be at P45,000
38. A,B and C are partners with average capital balances during 2012. P472,500 ; P238,650 ; and P162,350,
respectively. The partners receive 10 interest on their average capital balances ; after deducting salaries of
P122,325 to A and P82,625 to C, the residual profit or loss is divided equally.
In 2012, the partnership had net loss of P125,624 before the interest and salaries to partners. By what
amount should A and C capital account change?
A, capital B, capital
A. 40,844 decrease 31,237 decrease

B. 28,358 decrease 32,458 increase
C. 29,476 increase 17,536 increase
D. 30,267 increase 40,448 decrease
39. In 2011, Dreambuilders, Inc. was contracted to build the private road network of ALBABANG Subdivision
for P350 million. The product was expected to be finished in 2 years and the contract provide for:
 A 5% mobilization fee (to be deducted from the last billing), payable within 15 days from the
contract signing.
 A retention provision of 10% on all billings, payable with the final bill after the completed contract is
accepted .
 Payment of progress billings within 30 days from acceptance.
Dreambuilders, Inc. estimated a 25% gross margin on the project. By the end of the year, Dreambuilders had
presented progress billings corresponding to 50% completion. ALABANG accepted all the bills presented,
except one for 10% which was accepted on January 7 of the next year. With the exception of the second to the
last billing for 10% which was due January 13 of the next year, all accepted billings were settled. As of
December 31, 2011, Dreambuilders, Inc. construction in progress, net of billing, from the project under the
percentage of completion method amounted to:
a. P35 million
b. P140 million
c. P0
d. P175 million
40. on January 2, 2010, Panaad Company acquired 80% interest in Sarabia Company for P4,125,000 cash.
On the date the outstanding; capital stock and retained earnings of Panaad Company and Sarabia
Company are as follows:
Panaad Sarabia
Common shares P2,250,000 P1,312,000
Share premium 1,500,000 -
Retained earning 525,000 3,187,500
There was no issuance of capital stock during the year. Non-controlling interest is initially measured at fair
value. Fair values of the following assets of Sarabia expanded their book values as follows: Inventories,
P210,000; Property and equipment (useful life 10 years). P127,500. All other assets and liabilities are fairly
valued. Goodwill if any is not impaired. On December 31, 2010 the two companies reported the following
operating results:
Panaad Sarabia
Net Income P1,785,000 P975,000
Dividends paid 525,000 262,500
What is the consolidated stockholders’ equity to be reported in the consolidated statement of financial
position on December 31, 2010?
a. P10,651,800
b. P13,500,000
c. P7,035,000’

d. P11,781,000
41. Tropical Company manufacturing three products a joint process which costs P25,000. Each product can be
sold at slit-off or processed further and then sold. 10,000 units of each product are manufacturing. The
following information is available for the three products.
Sales Value Separable Sales Value
Products at Split-off Processing at Completion
Costs after Split-off
A P12 P9 P21
B 10 4 17
C 15 6 19
To maximize profits, which products should Tropical process further?

a. Product A only
b. Product B only
c. Product C only
d. Product A,B, and C
42. Which of the following statements is incorrect?
a. In the construction of building by contract, Advances to Contractor account may be debited when
billings are received.
b. In the construction of building by contract, Construction in Progress account it credited to recognize
the building account.
c. Issued purchase order for the office equipment requires only a memo entry in RAOCO.
d. The agency enters the obligation for bank charges in RAOFE; Cash in Bank- LCCA account is
credited in the regular agency books.
43. A non profit organization had the following cash contributions and expenditures in 2012:
Unrestricted cash contributions P300,000
Restricted cash contributions for the acquisition of property 200,000
Cash expenditures to acquire property 200,000
The statement of cash follows should include which of the following amounts?
a. Operating P700,000, investing (P200,000), and Financing P0.
b. Operating P500,000, investing P0, and financing P0.
c. Operating P500,000, investing (P200,000)
d. Operating P0, Investing P500,000 and Financing P200,000
44. On July 1, 2012, XYZ Construction Corp. Contracted to build in office building for ABC, Inc. for total
contract price of P975,000.
2012 2013 2014
Contract cost incurred to date P75,000 2,600,000 P1,050,000
Estimated costs to complete the contract 675,000 400,000
Billings to ABC, Inc. 150,000 550,000 275,000
How much is the Construction in Progress account balance at December 31, 2013, using the percentage of
completion method?
a. P900,000 b. P575,000 c.P825,000 d. P350,000
45. MOBY Company which began operation on Jan. 1, 2012, appropriately uses the instalment sales method
of accounting. The following data are available for 2012.
Instalment Accounts Receivable 12/31/12
DGP, 12/31/12 (before recognition of RGP)
GPR on sale
The cash collection during the year amounted to:
a. a. 300,000 c. 600,000
b. b. 450,000 d. 432,000
46. Diane and Pinky join for the sale of certain mer5chandise. The participants agree to the following:
a. Diane shall be allowed a commission of 10% on his net purchase.
b. The participants shall be allowed commissions of 2.5% on their respective sales.
c. Diane and Pinky shall divide the profit or loss 60% and 40%, respectively
Joint Venture Transaction follows:
Dec. 1 Diane makes cash purchase of P57,000
3 Pinky pays venture expenses of P9,000
5 Sales are as follows: Diane- P48,000; Pinky-P36,000. The participants keep their
own cash receipts
6 Diane returns unsold merchandise and receives P15,000 cash
15 The participants make cash settlement
In the final settlement, what amount would Pinky pay Diane?
a. 14,100 b. 14,880 c. 14,890 d. 15,100
47. On March 2011 entities SME A and SME B each required 30 percent of the ordinary shares that carry
voting rights at a general meeting of shareholders of entity Z of P300,000. Entities A and B immediately
agreed to share control over entity Z. On 31 December 2011 entity Z declared a dividend of P100,000 for
the year 2011. Entity Z reported a profit of P80,000 for the year ended 31 December 2011. At 31
December 2011 the recoverable amount of each venture’s investment in entity Z is P290,000 (calculation:
fair value P293,000 less cots to sell P3,000). There is no published price quotation for entity Z.
Assuming that entity Z earned its profit evenly through the year, under Cost Method, How much will be
recognized in profit (loss) by each venture as a result of the investment?
a. a. 30,000 c. 20,000
b. b. 16,667 d. 38,333
48. On January 1, 2011, A acquired a 50% interest in B for P60 million. A already held a 20% interest which
had been acquired for P20 million but which was valued at P24 million at January 1, 2011. The fair value of
the NCI at January 1, 2011 was P30million, and the fair value of the identified net assets of B was P100
million. How much is the goodwill to be recognized as a result of the business combination?
A. A. 3,000,000 B. 7,000,000 C.0
D.4,000,000
49. Kobe Company acquired the net assets of Lakers Corporation on January 1, 2011. Since the parties
cannot agree on the definite value of the company in terms of potential future earnings, they agreed to
include in the purchase agreement a provision for contingent consideration. Whereby the acquirer will
apply an additional cash payments on January 1, 2013 equal to twice the amount by which average
earnings of Lakers exceed P250,000 per year, prior to January 1, 2013. Net income was P500,000 in 2011
and P600,000 in 2012. Assume that the liabilities recorded on January 1, 2011, include an estimated
contingent liability amounting to P400,000.
What was the entry made by Kobe in January 1, 2013?

A. Liability form contingent consideration 400,000
Cash 400,000
B. Goodwill 200,000
Liability from contingent consideration 400,000
Cash 600,000
C. Liability from contingent consideration 400,000
Loss on contingent consideration 200,000
Cash 600,000
D. Goodwill 600,000
Cash 600,000
50. Pete Enterprises owns 60% of the outstanding stock of Susie Company, which it purchased for P50,000
above the underlying book value P720,000 on December 31, 2008. For the year 2011, Susie included in its
net income P90,000 of unrealized gain on a year-end sale of depreciable assets to Pete. The NCI of Susie
was assigned P12,000 of income in the 2011 consolidated financial statements. The excess allocated to
equipment is amortized over 20 years. What is the net income reported by Susie for 2011?
a. 125,000
b. 120,000
c.155,000
d. 150,000


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A1 PASSERS TRAINING, RESEARCH, REVIEW & DEVELOPMENT COMPANY

BOARD OF CERTIFIED PUBLIC ACCOUNTANT

CERTIFIED PUBLIC ACCOUNTANT Licensure Examination SET A

1. General –purpose financial statements are the product of

8. Which of the following is not a basic element of financial statements?

49. Which of the following is not a related party of an entity?

62. Which of the following information is not specifically a required disclosure?

88. An investment property should be measured initially at

A1 PASSERS TRAINING, RESEARCH, REVIEW & DEVELOPMENT COMPANY

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 8

BOARD OF CERTIFIED PUBLIC ACCOUNTANT

CERTIFIED PUBLIC ACCOUNTANT Licensure Examination SET B

An Exception in a substantive test of transactions provides an indication of the likelihood of monetary

A. True; False C. False; True

7. Which of the following statements is not correct?

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 9

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 10

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 11

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 14

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 15

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 16

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 17

A1 PASSERS TRAINING, RESEARCH, REVIEW & DEVELOPMENT COMPANY

BOARD OF CERTIFIED PUBLIC ACCOUNTANT

CERTIFIED PUBLIC ACCOUNTANT Licensure Examination SET A

MANAGEMENT ADVISORY SERVICES

USE THE FOLLOWING TO ANSWER QUESTION 1-4:

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 18

17. The contribution approach income statement:

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 19

Activity Cost Pool Total Activity

Fabrication Order processing Other Total

Sales at the break-even point P312,500

What is snowbird’s margin of safety?

USE THE FOLLOWING TO ANSWER QUESTIONS 26-30:

26. The total number of units produced during April was:

Product Unit Sales Price Unit Variable Cost

32. Qualitative factors:

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 23

A1 PASSERS TRAINING, RESEARCH, REVIEW & DEVELOPMENT COMPANY

BOARD OF CERTIFIED PUBLIC ACCOUNTANT

CERTIFIED PUBLIC ACCOUNTANT Licensure Examination SET A

Investee Company Share Cost Fair Value

Investee Company Shares Cost Fair Value

Kongga Company 15,000 780,000 540,000

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 24

A. P12,330,000 P13,290,000 P7,260,000

October 1 9,900,000 3,600,000

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 25

Calculate the December 31,2014 net book value of the following:

During 2013, Kandaba completed the following transactions:

Jan. 1 Shares outstanding, 500,000; P2 par (900,000 shares authorized).

2013 P170,625 loss

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 28

21. What is the carrying value of Patents on December 31, 2013?

28. What is the cost of the machinery purchased on December 31 2012?

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 29

2013 2012 2011