Accountancy Department

Qualifying Examination – Financial Accounting & Reporting

Part 1. Read each item carefully. Choose the correct answer. Write the capital letter of your choice
on the answer sheet.

1. Which of the following is not an advantage of having a conceptual framework of accounting?

a. Development of accounting standards is subject to less political pressure.
b. A consistent balance sheet or income statement approach is used to setting standards.
c. Considers all needs of users
d. Avoids a mixed-up approach to setting standards
2. For the presentation of other comprehensive income, entities have a choice of:
I. A single statement: Statement of profit or loss and other comprehensive income
II. Two consecutive statements: Statement of profit or loss and Statemen of comprehensive
income
a. I only b. Both I or II
c. II only d. Neither I and II
3. The ingredients of relevant financial information are
a. Predictive value and confirmatory value
b. Predictive value, confirmatory value, and timeliness
c. Predictive value, confirmatory value, and materiality
d. Predictive value, confirmatory value, timeliness, and materiality
4. The statement of cash flows is, in reality, another way of presenting the of a
company.
a. Balance Sheet b. Income Statement
c. Statement of Changes in Equity d. Cash Book
5. How is it possible for a firm to be profitable and still go bankrupt?
a. The firm has positive net income but has failed to generate cash from operations.
b. Sales have not improved even though credit policies have been eased.
c. Earnings have increased more rapidly than sales.
d. Net income has been adjusted for inflation.
6. Which one of the following is stated as an underlying assumption according to the Conceptual
Framework of Financial Reporting
a. Neutrality b. Accruals
c. Relevance d. Going Concern
7. What is the quality of information that enable users to better forecast future operations?
a. Reliability b. Materiality
c. Comparability d. Relevance
8. Which of the following disclosures are specifically required by PAS 1 Presentation of Financial
Statements?
I. The name of the reporting entity of other means of identification
II. The names of all major shareholders
III. The level of rounding used in presenting amount in the financial statements
IV. Whether the financial statements cover the individual entity or a group of entities
a. Reliability b. Materiality
c. Comparability d. Relevance
9. Comprehensive income includes all of the following except
a. revenues and gains
b. expenses and losses
c. preferred share dividend
d. finance costs

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10. 1st Statement: Revision of the Conceptual Framework will automatically lead to changes in
Standard that are inconsistent with the revised concepts.
2nd Statement: Under the new framework, information needed to assess management’s
stewardship is always different from information needed to assess the prospects for future net
cash inflows to the entity.
a. Reliability b. Materiality
c. Comparability d. Relevance
11. Items that are added back to net income in determining net cash provided by operating
activities under the indirect method do not include:
a. depreciation method b. an increase in inventory
c. amortization expense d. loss on disposal of equipment
12. Haha Company applies the same accounting treatment to similar events from period to period.
Haha Company is exhibiting which of the following qualities of described by the Conceptual
Framework?
a. Verifiability b. Consistency
c. Predictive Value d. Conservatism
13. Which of the following is not an acceptable major asset classification?
a. Current Assets b. Investments
c. Property, Plant, and Equipment d. Deferred Charges
14. When a corporation issued its ordinary shares in payment for services, the least appropriate
basis for recording the transaction is the
a. fair value of the services received.
b. par value of the shares issued.
c. fair value of the shares issued.
d. any of these provides an appropriate basis for recording the transaction
15. Total shareholder’s equity represents
a. a claim to specific assets contributed by the owners.
b. the maximum amount that can be borrowed by the enterprise.
c. a claim against a portion of the total assets of an enterprise.
d. only the amount of earnings that have been retained in the business.
16. Treasury stock was acquired for cash at a price in excess of its par value. The treasury stock
was subsequently reissued for cash at a price in excess of its acquisition price.

Assuming that the cost method of accounting for treasury stock transactions is used, what is
the effect on retained earning?
Acquisition of Treasury Stock Reissuance of Treasury Stock
a. No effect Increase
b. Increase No effect
c. No effect No effect
d. Increase Decrease

17. The entry to record the issuance of ordinary shares for a full paid stock subscription is
a. a memorandum entry
b. Dr. Ordinary Share Subscribed; Cr. Share Premium – Ordinary
c. Dr. Ordinary Share Subscribed; Cr. Subscription Receivable – Ordinary
d. Dr. Ordinary Share Subscribed; Cr. Ordinary Share Capital
18. Which of the following cannot be considered fair presentation?
a. To rectify inappropriate accounting policies either by disclosure of accounting policies
used or by notes or explanatory information
b. To present and apply accounting policies in accordance with applicable PFRS
c. To present in a manner that provides relevant, reliable, comparable, and understandable
information
d. To provide additional disclosures when compliance with specific PFRS is insufficient to
understand the entity’s financial position and financial performance

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19. Which of the following described the effect of the issuance of certificates of stocks for fully
paid subscription?
Total Assets Shareholder’s Equity
a. No effect No effect
b. Increase Increase
c. Decrease Decrease
d. No effect Increase

20. Cyber Corp. recorded the following journal entry on February 14, 2021:
Cash ₱42,250
Ordinary Share ₱32,500
Share Premium 9,750
The explanation reads: “Issued ordinary share for ₱130 per share.” What is the par value of
this stock, and how many shares were issued?
a. ₱100 par; 325 shares b. ₱130 par; 250 shares
c. ₱30 par; 325 shares d. ₱130 par; 325 shares

Part 2. Read each problem carefully. Answer the questions that follow. Show all supporting
computations on the answer sheet.

Problem 1 (10 points)

The December 31, 2021 statement of financial position accounts of SB19 Company are shown
below:

Cash in bank – BDO Account No. 12344-556 ₱14,000,000

Sinking fund (in payment for the Bonds payable due in 2025) 2,000,000
Prepaid advertising 60,000
Cash in bank – BPI (overdraft) Account No. 13055-221 500,000
Share premium – ordinary shares 800,000
Treasury shares 200,000
Ordinary share capital 7,000,000
Revaluation surplus 100,000
Trade receivables 10,000,000
Retained earnings ?
Notes payable – Bank (due in 2023) 1,500,000
Trade notes payable 3,000,000
Deferred tax liability 50,000
Deferred tax asset 80,000
Investment in associate 9,000,000
Investment property 15,400,000
Notes receivable – nontrade (due in 2023) 300,000
Inventory 6,500,000
Advances to suppliers 2,800,000
Allowances for doubtful accounts 120,000
Land 9,300,000
Building 15,000,000
Accumulated depreciation – Building 3,700,000
Accumulated amortization – Patent 500,000
Patent 2,500,000
Income tax payable 450,000
Accounts payable 3,800,000
Interest receivable 90,000
Interest payable 110,000
Petty cash fund 100,000
Bonds payable (due in 2025) 2,000,000
Preferred share capital 900,000
Share premium – preferred shares 200,000
Salaries payable 345,000

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The top management requested you to prepare a properly classified statement of financial position
as of December 31, 2021.

Required:
1. Total current assets
2. Total noncurrent assets
3. Total current liabilities
4. Total noncurrent liabilities
5. Total Shareholder’s Equity

Problem 2 (10 points)

Zenki Corp. report operating expenses in two categories: (1) selling and (2) general and
administrative. The adjusted trial balance on December 31, 2021, included in the following
expense accounts:

Accounting and legal fees ₱280,000

Doubtful account expense 120,000
Advertising expense 150,000
Freight-out 175,000
Interest Expense 160,000
Loss on sale of long-term investments 130,000
Officer’s salaries 180,000
Rent for administrative office building 480,000
Rent for store building 180,000
Sales, salaries, and commissions 210,000
Depreciation expense – Delivery Truck 40,000

Other financial information:

Sales ₱21,960,000
Sales returns and allowances 60,000
Sales discounts 90,000
Inventory, January 1 2,520,000
Inventory, December 31 1,250,000
Purchases 6,420,000
Purchase discounts 180,000
Freight-in 80,000
Purchase returns 20,000
Investment Income 640,000
Increase in Unrealized gain – FVOCI 80,000
Increase in Revaluation surplus 30,000
Income tax rate 25%

Required:
1. How much is the gross profit for the year ended December 31, 2021?
2. How much of the expenses listed above should be included in Zenki’s selling expenses for
2021?
3. How much of the expenses listed above should be included in Zenki’s general and
administrative expenses for 2021?
4. How much is the Net Income for the year ended December 31, 2021?
5. How much in the Total Comprehensive Income for the year ended December 31, 2021?

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Problem 3 (10 points)
Naruto Company had the following income statement for the year ended December 31, 2021:

Sales ₱12,000,000
Cost of goods sold
Inventory, January 1, 2021 ₱3,500,000
Purchases ₱5,712,000
Purchase returns and allowances (22,000)
Purchase discounts (36,000) 5,654,000
Cost of goods available 9,154,000
Inventory, December 31, 2021 (1,700,000) 7,954,000
Gross profit 4,046,000
Operating expenses:
Salaries 800,000
Rent 500,000
Insurance 150,000
Interest expense on trade notes 300,000
Loss on sale of equipment 112,000
Depreciation 100,000 (1,962,000)
Net Income 2,084,000

The company had the following account balances for the current period:

December 31 January 1
Accounts receivable ₱1,000,000 840,000
Inventory 1,200,000 3,500,000
Prepaid Insurance 130,000 120,000
Accounts Payable 960,000 420,000
Salaries Payable 100,000 160,000
Interest Payable 85,000 100,000

Additional information:
• Cash sales were 15% of total sales for the period
• All purchases were on account
• Equipment was sold for cash during the year of ₱2,000,000
• Cash payment for the purchase of land, ₱800,000
• Cash received from payment of long-term loan made to another entity, ₱1,500,000
• Proceeds from issuance of share capital, ₱5,000,000
• Proceeds from issuance of 5-year bonds payable, ₱1,000,000
• Cash paid for the acquisition of treasury shares, ₱600,000
• Distributed cash dividends to shareholders, ₱250,000

Required:
1. Cash received from customer during 2021
2. Cash paid to suppliers during 2021
3. The net cash provided (used) by operating activities during 2021
4. The net cash provided (used) by investing activities during 2021
5. The net cash provided (used) by financing activities during 2021

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Problem 4 (6 points)
Pablo Corporation had the following equity accounts for the year ended December 31, 2022:

Preference shares with par value of ₱12 ₱2,400,000

Ordinary shares with a stated value of ₱15 3,750,000
Subscribed preference shares 888,000
Subscribed ordinary shares at stated value 600,000
Share premium – ordinary 500,000
Share premium – preference 460,000
Share premium – treasury 1,400,000
Subscription receivable – preference 1,200,000
Subscription receivable – ordinary 440,000
Retained earnings 2,600,000
Treasury shares – ordinary at ₱20 per value (280,000)

Required:
1. Total contributed capital
2. Total legal capital
3. Outstanding ordinary shares

Problem 5 (4 points)
The original sale of the ₱50 par value ordinary shares of STELL Company was recorded as
follows:

Cash ₱870,000
Ordinary Share Capital – Ordinary ₱500,000
Share Premium – Ordinary 80,000

STELL Company record the treasury share transactions using the cost method:

Transactions
1. Bought 5,000 ordinary shares as treasury shares at ₱62
2. Reissued 2,000 shares of treasury shares at ₱60
3. Reissued 1,000 treasury shares at ₱68

Required:
1. Journalize the reissuance of 2,000 treasury shares.
2. Journalize the reissuance of 1,000 treasury shares.

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Problem 6 (10 points)
Florenz Company was organized on January 1, 2021, with the following transactions affecting
shareholder’s equity:

1. The company was authorized to issue ₱200,000 ordinary shares with ₱50 par value.
2. 80,000 ordinary shares were issued for cash at ₱60 per share.
3. 20,000 ordinary shares were subscribed at par value
4. ₱800,000 was received on the above subscription to ordinary shares
5. 2,000 ordinary shares were issued in payment of legal fees of ₱100,000 in connection
with organizing the corporation.
6. 40,000 ordinary shares were issued for property, plant, and equipment which had a fair
value of ₱2,600,000.
7. The balance owing on the subscription described in No. 3 and 4 was collected.
8. Acquired 10,000 ordinary shares at ₱40 per share. These shares are to be held as treasury.
9. Appropriated retained earnings to the extent of the cost of the treasury shares.
10. Closed the net income of ₱5,000,000 to retained earnings.

Requirement: Prepare journal entries to record the transactions using memorandum entry
method.

Submit this test question set together with the answer sheet.
Bringing the test question set out of the room will be grounds for disciplinary action.

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