FAR_Learning Assessment 1 INTEGRATED REVIEW/REFRESHER IN ACCOUNTANCY

UNIVERSITY OF LUZON
COLLEGE OF ACCOUNTANCY
CPA REVIEW CENTER

FINANCIAL ACCOUNTING & REPORTING – Learning Assessment 1

Use the G-form as your answer sheet.

Multiple Choice Questions

1. Current liabilities include:
a. only obligations which are expected to be settled within the normal operating cycle.
b. only obligations which are due to be settled within one year from balance sheet date.
c. obligations which are expected to be settled within the normal operating cycle and
obligations which are due to be settled within one year from balance sheet date.
d. refinanced long-term debt falling due within one year from balance sheet.

2. A long-term debt falling due within one year should be reported as noncurrent liability should
be reported as noncurrent liability if the following conditions are met (choose the incorrect one):
a. The original term is for a period of more than one year.
b. The enterprise intends to refinance the obligation on a long-term basis.
c. The intent to refinance is supported by an agreement to refinance which is completed before
the issuance of the financial statements.
d. The intent to refinance is supported by an agreement to refinance which is completed after
the issuance of the financial statements.

3. On April 30, 2025, Witt Corp. had outstanding 8%, P1,000,000 face amount, convertible bonds
maturing on April 30, 2029. Interest is payable on April 30 and October 31. On April 30, 2025,
all these bonds were converted into 40,000 shares of P20 par ordinary share. On the date of
conversion:
 Unamortized bond discount was P30,000.
 Each bond had a fair value of P1,080.
 Each share of stock had a fair value of P28.

What amount should Witt record as a loss on conversion of bonds?

a. 150,000
b. 110,000
c. 30,000
d. 0

4. Blues Corporation's trial balance included the following account balances at December 31, 2019:
Accounts Payable ........................................ P45,000
Bonds Payable, due 2020 ................................. 75,000
Discount on Bonds Payable, due 2020 ..................... 9,000
Dividends Payable January 31, 2020 ...................... 24,000
Notes Payable, due January 31, 2023 ..................... 60,000

What amount should be included in the current liability section of Blues' December 31, 2019,
balance sheet?
a. P135,000
b. P153,000
c. P195,000
d. P234,000

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FAR_Learning Assessment 1 INTEGRATED REVIEW/REFRESHER IN ACCOUNTANCY

5. On June 30, 2019, King Co. had outstanding 9%, P5,000,000 face value bonds maturing on June
30, 2014. Interest was payable semiannually every June 30 and December 31. On June 30, 2019,
after amortization was recorded for the period, the unamortized bond premium and bond issue
costs were P30,000 and P50,000, respectively. On that date, King acquired all its outstanding
bonds on the open market at 98 and retired them. At June 30, 2019, what amount should King
recognize as gain on redemption of bonds?
a. 20,000
b. 80,000
c. 120,000
d. 180,000

6. During 2020, Stabler Co. introduced a new line of machines that carry a three-year warranty
against manufacturer’s defects. Based on industry experience, warranty costs are estimated at
2% of sales in the year of sale, 4% in the year after sale, and 6% in the second year after sale.
Sales and actual warranty expenditures for the first three-year period were as follows:
Sales Actual Warranty Expenditures
2020 P 400,000 P 6,000
2021 1,000,000 30,000
2022 1,400,000 90,000
P2,800,000 P126,000
What amount should Stabler report as a liability at December 31, 2022?
a. P0
b. P10,000
c. P136,000
d. P210,000

7. Kent Company, a division of National Realty Corporation, maintains escrow accounts and pays
real estate taxes for National’s mortgage customers. Escrow funds are kept in interest-bearing
accounts. Interest, less a 10% service fee, is credited to the mortgagee’s account and used to
reduce future escrow payments. Additional information follows:
Escrow accounts liability, 1/1/2020 P 700,000
Escrow payments received during 2020 1,580,000
Real estate taxes paid during 2020 1,720,000
Interest on escrow funds during 2020 50,000
What amount should Kent report as escrow accounts liability in its December 31, 2020 balance
sheet?
a. P510,000
b. P515,000
c. P605,000
d. P610,000

8. Mott Co. includes one coupon in each bag of dog food it sells. In return for eight coupons,
customers receive a leash. The leashes cost Mott P2.00 each. Mott estimates that 40 percent of
the coupons will be redeemed. Data for 2020 and 2021 are as follows:
2020 2021
Bags of dog food sold 500,000 600,000
Leashes purchased 18,000 22,000
Coupons redeemed 120,000 150,000
The estimated premium liability at December 31, 2021 is
a. P11,250.
b. P21,250.
c. P22,500.
d. P42,500.

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9. On April 1, 2022, Art Corporation began offering a new product for sale under a one-year
warranty. Of the 50,000 units in inventory at April 1, 2022, 30,000 had been sold by June 30,
2022. Based on its experience with similar products, Art estimated that the average warranty
cost per unit sold would be P80. Actual warranty costs incurred from April 1 through June 30,
2022 were P700,000. At June 30, 2022, what amount should Art report as warranty expense?
a. 700,000
b. 900,000
c. 1,700,000
d. 2,400,000

10. Right Store sells gift certificates, redeemable for store merchandise, that expire one year after
their issuance. Right has the following information pertaining to its gift certificate sales and
redemptions:
Unredeemed at 12/31/2022 750,000
2023 sales 2,500,000
2023 redemptions of prior year sales 250,000
2023 redemptions of current year sales 1,750,000
Right’s experience indicates that 10% of gift certificates sold will not be redeemed. In its
December 31, 2023 income statement, what amount should Right report as revenue?
a. 2,500,000
b. 2,000,000
c. 1,250,000
d. 500,000

11. Winter Co. is being sued for illness caused to local residents as a result of negligence on the
company's part in permitting the local residents to be exposed to highly toxic chemicals from its
plant. Winter's lawyer states that it is probable that Winter will lose the suit and be found liable
for a judgment costing Winter anywhere from P1,200,000 to P6,000,000. However, the lawyer
states that the most probable cost is P3,600,000. As a result of the above facts, Winter should
accrue
a. a loss contingency of P1,200,000 and disclose an additional contingency of up to P4,800,000.
b. a loss contingency of P3,600,000 and disclose an additional contingency of up to P2,400,000.
c. a loss contingency of P3,600,000 but not disclose any additional contingency.
d. no loss contingency but disclose a contingency of P1,200,000 to P6,000,000.

12. On January 3, 2020, Boyer Corp. owned a machine that had cost P200,000. The accumulated
depreciation was P120,000, estimated salvage value was P12,000, and fair value was P320,000.
On January 4, 2020, this machine was irreparably damaged by Pine Corp. and became worthless.
In October 2020, a court awarded damages of P320,000 against Pine in favor of Boyer. At
December 31, 2020, the final outcome of this case was awaiting appeal and was, therefore,
uncertain. However, in the opinion of Boyer’s attorney, Pine’s appeal will be denied. At
December 31, 2020, what amount should Boyer accrue for this contingent asset?
a. P320,000.
b. P260,000.
c. P200,000.
d. P0.

13. Which obligations are classified as current even if they are due to be settled after more than 12
months from balance sheet?
a. bank overdrafts
b. dividends payable
c. income taxes payable
d. trade payables and accruals for employee and other operating costs

14. What should be the amount to be recognized as the provision?

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FAR_Learning Assessment 1 INTEGRATED REVIEW/REFRESHER IN ACCOUNTANCY

a. best estimate of the expenditure

b. maximum of the range
c. minimum of the range
d. midpoint of the range

15. A provision should be recognized as liability when (choose the incorrect one):
a. an enterprise has a present obligation as a result of a past event
b. it is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation
c. it is possible that an outflow of resources embodying economic benefits will be required to
settle the obligation
d. the amount of the obligation can be measured reliably

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