1.

Walter Company has an accounts receivable balance of P500,000 and Allowance for Bad Debts of
P48,000 as of December 31, 2020. Below are transactions recorded by the company in 2021:

Credit sales during the year P 3,120,000

Total accounts collected from customers during the year 3,020,160
Accounts written off as uncollectible 42,000
Recoveries of accounts written off in the previous year 2,160

An aging of accounts receivable on December 31, 2021 is shown below:

Age group % to the Total Account Receivable Balance Probability of Collection
Less than 60 days 60% 99%
Between 61 and 120 days 22 88
Between 121 and 180 days 15 45
Over 180 days 3 20

The balance of allowance for bad debts as of December 31, 2021 is

a. 77,484 b. 77,324 c. 77,784 d. 77,544

Answer: C

Solution:
Probability
Age group AR Balance of uncollectibility Allowance
Less than 60 days 336,000 1% 3,360
B/w 61 & 120 123,200 12% 14,784
B/w 121 & 180 84,000 55% 46,200
Over 180 16,800 80% 13, 440
Total 560,000* 77,784

* Accounts Receivable
Beg. 500,000

Cr. Sales 3,120,000

Recoveries 2,160 3,020,160 Collections

42,000 Write-off

End. 560,000
2. Which of the following transactions will decrease the recorded accounts receivable
a. Sale of goods on account.
b. Collection of accounts previously written off
c. Return of goods sold to a customer on account.
d. Cash discount availed using the net method.
Answer: C
3. On January 1, 2021, White Inc. purchased a unit of equipment for a total cost of P5,000,000. The
equipment is expected to have a 5-year useful life and a residual value of 10% of its original cost

Using the straight-line method, how much is the carrying value of the equipment as of December
31, 2024?
a. 4,500,000 b. 500,000 c. 1,400,000 d. 900,000

Answer: C

Solution:
5,000,000 – 500,000/5 years = 900,000 (Yearly)
Accum depreciation from Jan. 1, 2021 to Dec. 31, 2024: 900,000 x 4 years = 3,600,000

Cost 5,000,000
Accum dep (3,600,000)
CV 12/31/24 1,400,000

4. If the non-monetary exchange transaction lacks commercial substance or the fair value of neither
the asset received nor the asset given up is not reliably measurable, its cost is measured at
a. Net realizable value c. Fair value
b. Carrying amount of the asset given up d. Future value

Answer: B

5. On January 1, 2022, Jesse Company purchased several equipment that will be used in the
production of goods at a purchase price of P1,000,000. Hydrogen Company paid import duties of
P10,000 and non-refundable purchase taxes of P5,000. Hydrogen Company also incurred a
P30,000 installation and assembly cost. Hydrogen Company expects that it will incur dismantling
cost amounting to P132,275 at the end of its 5year useful life. The prevailing market interest rate
during the transaction date was 12%.

The present value factor of P1 at 12% for 5 periods is at 0.567

The present value factor of ordinary annuity at 12% for 5 periods is at 3.6048

How much should the Machineries be initially recognized?

a. 1,045,000 b. 1,177,275 c. 1,120,000 d. 1,521,825

Answer: C

6. Saul Company uses the direct method to prepare its statement of cash flows. Saul Company had
the following cash flows during 2023:

Cash receipts from issuance of ordinary shares P800,000

 Cash receipts from customers 400,000
Cash receipts from dividends on long term investments 60,000
Cash payments for wages & other operating expenses 240,000
Cash payment for insurance 20,000
Cash payments for dividends 40,000
Cash payment to purchase land 160,000

What is the net cash provided (used) from financing activities?

a. (760,000) b. 760,000 c. 840,000 d. (840,000)

Answer: B

Solution:
Cash receipts from issuance of ordinary shares P800,000
Cash payments for dividends (40,000)
Net cash provided from financing activities 760,000
7. In a cash flow statement, depreciation is treated as an adjustment to reported net earnings
because depreciation
a. Is a direct source of cash
b. Reduces reported net earnings but does not involve an outflow of cash
c. Reduces reported net earnings and involves an inflow of cash
d. Is an inflow of cash to a reserve account for replacement of assets

Answer: B
8. In a cash flow statement using indirect method, a decrease in prepaid expense should be
a. Reported as an outflow and inflow of cash
b. Reported as an outflow of cash
c. Deducted from net income
d. Added to net income

Answer: D
9. At the beginning of current year, Walt Jr. Company is granted a large tract of land in the Cordillera
region by the Philippine government. The fair value of the land is P50,000,000.

The entity is required by the grant to construct chemical research facility and employ only
personnel residing in the Cordillera region.

The estimated cost of the facility is P45,000,000 with useful life of 5 years. The chemical research
facility was completed and ready for the intended use at the end of current year.
What amount of grant income should be recognized for the current year?
a. 50,000,000 b. 10,000,000 C. 9,000,000 d. 0
Answer: B

Solution:
 Grant income (50,000,000 / 5) 10,000,000
10. At the beginning of current year, Hank Company received a grant of 9,000,000 from the Mexican
government to compensate for massive losses incurred because of a recent flood.

The grant was made for the purpose of giving immediate financial support to the entity. It will
take the entity four years to reconstruct the assets destroyed by the tsunami.

What amount of grant income should be recognized in the current year?

a. 2,250,000 b. 9,000,000 c. 1,500,000 d. 0

Answer: B

PAS 20, paragraph 20, provides that a government grant that becomes receivable as
compensation for expenses already incurred or for the purpose of giving financial support to the
entity with no related future costs is recognized as income of the period in which it becomes
receivable or when received.

11. Government grant related to depreciable asset is usual, recognized as income

a. Immediately.
b. Over the useful life of the asset using straight line.
c. Over the useful life of the asset using sum of years digits.
d. Over the useful life of the asset and in proportion to the depreciation of the asset.

Answer: D
12. It is a government grant whose primary condition is that an entity qualifying for it should
purchase, construct or otherwise acquire long-term asset,
a. Grant related to asset
b. Grant related to income
c. Government gift
d. Government appropriation

Answer: A
13. Which of the following should be recorded in the accounts receivable account?
A. Interest receivable
B. Dividend receivable
C. Cash sales
D. Credit Sales

Answer: D
14. The following charges are capitalizable to land account, EXCEPT
a. Payments to tenants to induce them to vacate the premises to pave the way for the
construction of a new building
b. Buyer-assumed mortgages and encumbrances like property taxes
c. Special assessments for local improvement which benefit the property
 d. Costs of clearing, grading and filling

Answer: A

15. Customers’ credit balances are classified as

A. Current assets
B. Current liabilities
C. Noncurrent assets
D. Noncurrent liabilities

Answer: B
16. On January 1, 2022, Tatum Co. sold an equipment to Brown Co. Brown Co. issued a 5-year,
P500,000, 12% note to Tatum Co. The note requires the interest to be paid annually every
December 31 starting December 31, 2022 until the maturity of the note on December 31, 2026.
The prevailing interest rate for a note of this type is 10%.

Round off PV factors to four decimals.

At what amount shall the note be initially measured on January 1, 2022?

a. 453,920 c. 500,000
b. 496,720 d. 537,898

Answer: D

Solution:
Present value of the face amount (500,000 x 0.6209) 310,450
Add: Present value of interest payments [(500K x 12%) x 3.7908] 227,448
Initial measurement, 1/1/2022 537,898

17. Cash equivalents are

a. Short-term and highly liquid investments that are readily convertible into cash.
b. Short-term and highly liquid investments that are readily convertible into cash with
remaining maturity of three-months.
c. Short-term and highly liquid investments that are readily convertible into cash and acquired
three months or less before maturity.
d. Short-term and highly liquid marketable equity securities.

Answer: C

18. What is the major purpose of an imprest petty cash fund?

a. To effectively plan cash inflows and outflows.
b. To ease the payment of cash to vendors.
c. To determine the honesty of the petty cashier.
d. To effectively control cash disbursements.
 Answer: D
19. Under PAS 38, which of the following is not part of the definition of intangible assets
a. Identifiable non-monetary assets
b. Controlled by the enterprise
c. Future economic benefits
d. With physical substance

Answer: D
20. It is the systematic allocation of the cost of the intangible asset, less any residual value, as an
expense over the asset’s useful life
a. Amortization c. Bifurcation
b. Impairment d. Realization

Answer: A