1 Which of the following is an application of the

science aspect of accounting?

2 Which of the following is not an external

event?

3 One of the following is not an attribute of an

asset. Which one?
4 Which of the following is an incorrect
statement?

5 Which of the following statements about

financial statements is incorrect?

6 The concept of verifiability is complied with

when an accounting transaction occurs that
7 Which of the following statements about the
accounting cycle is true?

8 Which of the errors listed below would cause

the unadjusted trial balance to be out of
balance?

9 The rental payments of a five-year lease

contract expiring on December 31, 2013 was
paid in full on January 1, 2009. The original
payment was debited to a prepaid asset
account. The appropriate journal entry has
been recorded on December 31, 2009. The
balance in the prepaid asset account on
December 31, 2009 should be

10 Rockwell Company adopts a calendar year

accounting period. Which of the following
events involves an adjusting entry that would
be affected by how the event was originally
recorded?
11 Which of the following statements about
users of financial information is (are) true?
I. The public need information about the
trends and recent developments in the
prosperity of the enterprise.

II. Users of financial information are assumed

to have a general understanding of economic
activities and the basic accounting
terminologies used in financial reporting

III. Financial accounting is aimed at

addressing the common information needs of
all statement users and does not address any
specific user information need.

IV. Government and its agencies have an

interest in information about the continuance
of an enterprise especially when they have
longterm involvement or are dependent on
the enterprise

12 Why does a pharmacy need a different kind

of accounting system than what a physician
uses?

13 Which of the following is not a characteristic

of financial accounting?
14 Internal events are

15 The following descriptions pertain to

Financial Accounting except
16 The following are classified as external
events except:
17 Which of the following statement(s) about
bookkeeping system is (are) true?
I. All business entities must adopt double-
entry bookkeepinq in recording transactions
since it is the required bookkeeping system
by regulatory bodies

II. Any system of bookkeeping that falls

short of the double-entry system of
bookkeeping is single-entry bookkeeping
 III. Single-entry bookkeeping is acceptable to
some groups in the business community
IV. Double-entry bookkeeping is GAAP for
large reporting entities; single-entry
bookkeeping is GAAP for small entities

18 Rearrange the following accounts in their

logical sequence in the ledger
Cash
E. Go, Capital
Cost of sales
Accounts Payable
Inventory
Sales revenue
19 An independent appraisal function
established within an organtization to
examine and evaluate its activities as a
service to the organization.

20 Which of the following features of an asset

closely links its definition to the science of
Economics?

21 The storage unit of information on

accumulated increases and decreases
relating to a particular accounting value such
as an asset, a liability, etc.

22 Which of the following operations can be

performed by a computer without requiring
an accountant’s judgment?

23 Which of the following least resembles an

adjusting entry?
24 CJ Food Haus purchased an equipment for
P280,000. It paid cash as down payment and
issued a P 60,000 note payable (without
interest) in 60 days. Which one of the
following statements is not descriptive of the
above event?

25 Which of the following is not a principal

purpose of a trial balance?
26 In the equation, "Assets + Expenses =
Liabilities + Revenue + Capital," the
expenses and revenues are
27 At the end of the current year, a company
made four adjusting entries. One side of the
entry is shown below:

(1)Debit Doubtful Accounts Expense

(2)Credit Office Supplies Expense
(3)Credit Salaries Payable
(4)Debit Unearned Rent Income
In the normal situation, to facilitate
subsequent entries, the entries that may be
reversed are:

28 After the passage of R.A. 9298, the body

organized by PICPA in 1981 to establish and
improve generally accepted accounting
principles in the Philippines was renamed

29 Which of the following statement(s) about a

worksheet is (are) true?
I. In preparing a worksheet and the company
is profitable in the current period, the total of
the balance sheet credit column will be
smaller than the balance sheet debit column

Il. The least number of money columns that a

worksheet can have is six columns.
III. Entering the adjustments in the
adjustments column of a worksheet makes it
unnecessary to record and post adjusting
entries.

30 Which of the following statement(s) about

the accounting cycle is (are) true?
I. Selecting and analyzing accountable
events are part of the recording phase of the
accounting cycle.

II. A periodic adjusting entry always affects

both a balance sheet account and an income
statement account.

III. Reversing entries are always necessary in

order that the accounting cycle can be fully
complete.

31 Which of the following bases of accounting

for income and expenses is used by business
and industry?
32 The following are applications of the art
concept of accounting except

33 Which of the following statements does not

properly describe the fact that the
Accountancy profession is a communication
profession?

34 Which of the following features of an asset

closely links its definition to the science of
Economics?

35 Which of the following errors will cause a trial

balance to be out of balance?
36 A company that receives money in advance
of performing a service
37 Transactions are recorded chronologically in
the
38 The primary function of an account in the
accounting system is to
39 Which of the following transactions does not
affect the balance sheet totals?
40 Which of the following has the primary
responsibility for the preparation and
reliability of information in the financial
statements?

41 Which of the following combinations of trial

balance totals suggest the presence of either
a transposition error or a number slide?

42 As the usefulness of the asset Property and

Equipment expires,
43 Failure to adjust for accrued salaries at the
end of the period will result in an
44 The carrying value of a depreciable asset
equals
45 If an adjusting entry were not made at the
end of the accounting period to remove the
earned revenue from the Unearned Revenue
account,

46 Which of the following is an application of

accrual accounting?
47 The journal entry to record an accrued
expense results in which of the following
types of accounts being debited and
credited?

48 In the accounting equation, an increase in

asset can be associated with
49 Withdrawals by the proprietor has all of the
following effects except
50 Which of the following is not true?

51 The common types of businesses are

engaged in
52 A body of rules, policies, principles,
standards of recognition, and measurement
methods which has been developed and is
accepted by the members of the accounting
profession and the data-users is called:

53 Which of the following concepts assumes

that the purchasing power of the peso is
constant?

54 Which financial statement is most useful in

assessing the profitability of the business
enterprise?

55 When is income recognized as earned?

56 Recognition of expenses would generally

result in
57 Permanent accounts would include:
58 Which of the following transactions will
increase the total assets of the business?
59 Which of the following changes would most
likely accompany an increase in liability?
60 In accounting, the term debit is used to
indicate:
61 A journal entry must have the following
parts, except:
62 Posting references indicate:
63 The following accounts normally reflect debit
balances in an unadjusted trial balance:

64 Which error will result in an-out-of-balance

trial balance?
65 Which of the following errors will not affect
the equality of the debit and credit totals of a
trial balance?

66 The use of accrual basis accounting is

justified since:
67 Which of the following accounts is not an
asset?
68 Failure to recognize the accrued expenses at
the end of the period would result in
69 Which of the following is a liability account?
70 Which of the following accounts will not
appear in the balance sheet?
71 Upon the collection of the interest income,
the accountant debited cash and
simultaneously credited the interest income
account. The accountant used the:

72 Upon the payment of the, advertising

expense, the accountant debited prepaid
advertising and simultaneously credited
cash. The accountant used the:

73 If the business uses the expense method and

neglects to adjust the prepaid portion of the
expense, it will result to:

74 In preparing the worksheet, which of the

following group of accounts is not extended
to the balance sheet column?

75 Which of the following statements is false?

76 Proponents of the use of historical cost (or
price in past purchase exchange) as a
measurement of resources in financial
accounting advance that compared with
other types of money prices used for
measuring resources in financial accounting,
statements using this type are more

77 One of the following is not an attribute of an

asset. Which one?
78 Which of the following statements about
financial statements is incorrect?

79 Which of the following is true about the

operating cycle concept?

80 The storage unit of information on

accumulated increases and decreases
relating to a particular accounting value such
as an asset, a liability, etc.

81 Which of the following least resembles an

adjusting entry?
82 An understatement in reported net income
may result from failure to record
83 Which of the following is not a principal
purpose of a trial balance?
84 Which of the errors listed below would cause
the unadjusted trial balance to be out of
balance?

85 Which of the following statements is wrong?

86 Normal operating cycle:

 87 Which of the following is a non-current asset?

88 Which of the following statements is true?

89 Which of the following statements is false?

90 Which of the following accounts will be

subjected to closing entries?
91 Which accounts will have open balances after
the adjusting entries are journalized and
posted to the general ledger?

92 In accounting, the term credit is used to

indicate:
93 The business entity principle:

94 Income may come from:

95 Which of the following changes would most

likely accompany an increase in an asset?
96 If a two-column general journal is used,
which of the following statements is false?

97 Which of the following statements is

incorrect?

98 94. Which of the following statements is

false?

99 The following accounts normally reflect credit

balances in an unadjusted trial
100 The total of the credit side of a trial balance
is greater than that of the debit by P7, 500.
Which of the following errors is not a possible
reason for the trial balance to be out-of-
balance?
Accountants use their judgment in the choice
of the inventory cost flow to be applied to
inventory units on hand at the end of the
accounting period.

Goods for sale are stolen from the company

warehouse.

It is an expected future benefit

An accounting information system is

designed to collect data about each
transaction and event that should be
recorded by an entity during a reporting
year.
They provide information about the financial
position, performance and cash flows of an
enterprise that is useful to a wide range of
users in making economic decisions.

Furthers the objectives of the company

A periodic adjusting entry affects both a

balance sheet and income statement
accounts, or in some rare instances, only
income statement accounts.

Posting only the debit portion of a journal

entry

Tha same as it would have been if original

payment had been debited initially to an
expense account

Signing of a one-year promissory note for

equipment bought.
 a. Only I is true

They have different kinds of journals and

ledgers

Use of facts and estimates

Not recorded since they happened only

within the business

It is primarily historical in nature

Trade in of assets

I and II only
Cash, Inventory, E. Go, Capital, Accounts
Payable, Sales Revenue, Cost of Sales

External auditing

An asset is exclusively owned by an entity.

Account

Selecting the events

Debit to an asset, credit to an expense

The transaction did not immediately affect

the owner’s equity in the business.

It supplies a listing of open accounts and

their balances
Incorrectly included in the formula because
"Assets = Liabilities + Capital"
(1) and (2)

The Accounting Standards Council (ASC)

I only

I only

Accrual basis
Accountants’ use of creative skill and
judgment in the choice of a particular
depreciation method to be applied to a
particular asset.

Financial statements can be expressed in the

Spanish or Chinese language.

An asset is controlled by an entity.

Incorrectly recording the purchase of land for

cash as a debit to cashand credit to land.
Debits Cash and credits Prepaid Fees

Ledger

Store accounting transactions until they are

classified
Purchasing P50,000 supplies on account

Internal management accountant

P65,470 debit and P68,170 credit

A liability is created

Overstatement of assets

The estimated amount for which the asset

could be sold
Assets would be understated

Recording utilities expense when the monthly

bill is received
Expense and asset

An increase in liability

Reduction of total assets

Accounting is not an exact science.

Rendering services to clients or customers.

Generally accepted accounting principles.

Concept of equality of value received and

value given up

Balance sheet

At the time when goods or services are

delivered to the customer
Decrease in owner's equity.

Assets, liabilities and income.

Collected a customer's payment to apply on
his open balance.
Increase in asset

Increase in liability and equity.

Date.

The sources of the postings.

Assets, liabilities, expenses, and drawing

A journal entry has overstated debit and

credit amounts.
A ledger account was footed erroneously.

It contributes to the timeliness of the

financial statements.
Accrued interest income

Overstated profit and understated liabilities.

Allowance for doubtful accounts

Interest receivable

Asset method.

Asset method.

Overstated expense and overstated owner's

equity.

Assets, contra-assets, and liabilities

Nominal accounts are presented in the

income statement.
Reliable and verifiable from business
documents

It is an expected future benefit

They are prepared at least annually and are

directed to the common information needs of
a wide range of statement users.

The period covered is the time normally

required to convert cash invested in tangible
assets back into cash, or 12 months,
whichever is longer.

Ledger

Debit liability and credit revenue

Doubtful accounts expense

It supplies a listing of open accounts and

their balances
Posting only the debit portion of a journal
entry

A contra account is an account that is shown

in the financial statements as an addition to
the balance of another account.

Is the same as accounting cycle.

Supplies on hand

Nominal accounts are presented in the

statement of financial condition..

The balances of the real accounts are

forwarded to the next reporting period.
Real accounts

Mixed accounts only

Increase in liability and equity.

Assumes that the business and the owner of

the business are one person.

Sale of goods or services in the normal

course of operations.
Decrease in income

The debit accounts are written before the

credit accounts.

Each account has an account title, a debit

side, and a credit side.

A trial balance may be prepared at the end of

each month.

Liabilities, capital, drawing, and expenses

A ledger account with a debit balance of

P3,750 was erroneously written on the credit
side of the trial balance.
Accountants recognize assets acquired by External auditors attest to the fairness of
purchase on the basis of the invoice price presentation of financial condition and
evidencing the exchange transaction. operating results.

Office supplies purchased at the end of the Bombing of the twin tower building by a
year are used in operations. terrorist group.

It is measurable in terms of money It is the result of a past activity

Storing financial information in the ledger is Communication of processed financial

part of the recording phase of the accounting information is the goal of the financial
cycle. accounting process.

They are prepared at least annually and are They are the primary responsibility of both
directed to the common information needs of management and the external auditor after
a wide range of statement users. audit.

Allocates revenues or expense items in a Involves an arms-length transaction between

rational and systematic manner two independent interests
Adjusting entries are part of the recording The first step in posting is to transfer the
phase of accounting debit account from the journal to the ledger.

Overstating a liability balance by P100 and Failure to record an adjusting entry

expense balance by the same amount.

Zero Higher than if the original payment had been

debited initially to an expense account

Purchase of merchandise on account Payment of rent for six months coverage

starting November 15 of the current year
b. I and II are true c. I, II and III are true

They have different kinds of business They have different kinds of regulatory
transactions bodies

Primarily historical in nature Subjective data provided relevant

Not recorded because there is no value Recorded because they involve changes in
received and value parted with between values of the elements of accounting
parties

Emphasizes subjective data It must comply with GAAP

Expiration of prepaid rent Borrowing money from the bank

II and III only II, III and IV only

Inventory, Cost of Sales, Accounts Payable, Accounts Payable, Inventory, Cash, Sales
Cash, E. Go, Capital, Sales Revenue Revenue, E. Go, Capital, Cost of Sales

Internal auditing Fiduciary accounting

An asset is controlled by an entity. An asset can command a price.

Ledger Journal

Measuring the effects Preparing the trial balance

Debit to an expense and credit a liability Debit liability and credit revenue

Total liabilities increased by P60,000. From the viewpoint of a short term creditor,
the transaction made the business less
solvent.

It proves that debits and credits were It is the basis for any adjustments to the
properly entered in the ledger accounts account balances
Adjustments to capital that are postponed Incorrectly stated because their signs are
until the end of a specific accounting period reversed, i.e., both are contra items that
to determine their net effect on capital for should have negative signs in the formula.
that period
(2) and (3) (3) and (4)

The Auditing Standards and Practices Council The Financial Reporting Standards Council
(ASPC:) (FRSC)

I and II only II and III only

l and II only Il and III only

Cash basis, modified cash basis and accrual Modified cash basis
basis
Accountants interpret the information External auditors attest to the fairness of
presented in the financial statements presentation of financial condition and
through ratios and trend analysis. operating results.

Financial statements can be expressed in Financial statements should use terminology

any dialect of a country. within the level of understanding of the
statement user.

An asset can command a price. An asset can provide future benefits to an

entity.

Forgetting to enter an entire transaction into Posting a debit to Land as a debit to

the journal. Machinery.
Debits Unearned Revenues and credits Debits Cash and credits Accounts Rceivable
Accounts Payable
T-account Daybook

Identify the type of organization Accumulate accounting information

Collecting P40,000 from customers on Paying a P300,000 note payable

account
Management Internal audit staff

P33,220 debit and P35,420 credit P25,670 debit and P26,670 credit

A related expense account is reduced An amount is transferred from one asset

account to another
Overstatement of profit for the period Overstatement of liabilities

The original cost minus the depreciation The estimated cost to replace the asset
expense for the current period
Owner's equity would be overstated Liabilities would be overstated

Expensing a machine in its entirety when Depreciating a building as quickly as allowed

purchased by income tax regulations
Asset and income Asset and liability

A decrease in owner's equity A decrease in liability

Reduction of owner's equity Reduction of profit for the period

Accounting is the language of business. Accounting is a communication tool that is

used by both internal and external decision-
makers.

Trading or merchandising Manufacturing or fabrication.

Qualitative objectives. Qualitative characteristics.

Monetary concept Periodicity concept

Income statement Statement of changes in owner's equity

When the customer makes the order When the business is ready to make the
delivery to the customer
Decrease in the business enterprise's assets. Increase in the business enterprise's
liabilities.
Assets, liabilities and equity. Assets, equity and expenses.
Bought an equipment on cash basis Bought an equipment on account basis

Increase in equity Increase in revenue

Decrease in liability and equity. Increase in asset and liability.

Debit and credit accounts and amounts. Explanation.

The destinations of the postings. Both the sources and destinations of the
postings.
Assets, drawing, expenses, and income Assets, drawing, expenses, and losses

A journal entry was not posted. A debit entry was posted to the credit side of
the correct ledger account.
The debit and credit amounts used in the The balance of an account was copied on the
journal entry were overstated. wrong side of the trial balance.

It results in the better matching of income It prevents the use of estimates in the
and expenses. financial reports.
Rent receivable Unused supplies

Understated profit and overstated liabilities. Understated profit and understated liabilities.

Rent expense Accrued wages

Unexpired insurance Accumulated depreciation

Liability method. Expense method.

Liability method. Expense method.

Understated expense and understated Overstated expense and understated profit.

assets.

Liabilities, contra-liabilities, and profit of the Drawing, capital, and profit of the period
period

After posting the closing entries, the After posting the adjusting entries, there are
balances of the nominal accounts are no more nominal accounts in the general
reduced to zero. ledger.
Indicative of the entity's purchasing power Relevant to present day economy

It is the result of a past activity It has physical existence

They show the results of the stewardship of They provide information about the financial
management for the resources entrusted to position, performance and cash flows of an
it by the capital providers. enterprise that is useful to a wide range of
users in making economic decisions.

It affects the income statement but not the It causes the distinction between current and
statement of cash flows non-current items to depend on whether they
will affect cash within one year.

Account Book of secondary entry

Debit to an asset, credit to an expense Debit to an expense and credit a liability

Salaries payable Prepaid insurance

It proves that debits and credits of equal It proves that debits and credits were
amounts are in the ledger. properly entered in the ledger accounts
Interest on a 60-day, 6% note payable for Failure to record an adjusting entry
P6,000 was recorded and posted as a debit
to interest expense of P600 nd a credit to
Cash of P600.

A contra account is an account that is shown Allowance for depreciation is a contra

in the financial statements as a deduction account that is deducted from the cost of the
from the balance of another account. fixed assets, while allowance for doubtful
account is deducted from accounts
receivable.

Is the average time needed for raw materials Is the average time needed for cash to
to become finished goods. become raw materials, to finished goods, to
accounts receivable, and back to cash.
Furniture and equipment Accounts receivable

After posting the closing entries, the After posting the adjusting entries, there are
balances of the real accounts are reduced to no more nominal accounts in the general
zero. ledger.

The real accounts are reported in the The drawing account of the proprietor is
balance sheet. considered an income statement account.
Mixed accounts Nominal accounts

Real accounts only Nominal accounts only

Decrease in liability and equity. Increase in asset and liability.

Assumes that the business and the owner Assumes that the business enterprise is
are separate and distinct persons. principally organized for the purpose of
making profit.

Allowing others to use the business' cash or Sale of property at a price that is greater
property. than its cost or book value.
Increase in expense Decrease in liability

The debit amounts are generally positioned The explanation of an entry cannot occupy
on the left side of the credit amounts. more than two lines of the general journal.

An account is a sorting device that is used to Only balance sheet accounts can be found in
summarize the changes in the balance of the ledger.
each accounting element.

A trial balance may be prepared after all the The preparation of a trial balance will point
transactions of the period are posted to the out the journalizing and posting errors
ledger. committed by the accountant.

Liabilities, capital, drawing, and income Liabilities, capital, revenues, and gains

A ledger account with a debit balance of A credit entry of P7,500 was erroneously
P7,500 was omitted in the preparation of the posted twice.
trial balance,
Accountants recognize assets acquired B -
through non-reciprocal transfer by reference
to the fair market value of the asset in an
appropriate market.

Exchange of non-monetary assets between B -

Excelsior Company and Superior Enterprise.

It has physical existence D -

Generally accepted accounting principles are D -

strictly applied in all the steps of the
accounting cycle.

They show the results of the stewardship of C -

management for the resources entrusted to
it by the capital providers.

Is promptly recorded in a fixed amount of C -

pesos
Selecting and analyzing accountable events D -
are part of the recording phase of the
accounting cycle

Interest on a 60-day, 6% note payable for A -

P6,000 was recorded and posted as a debit
to interest expense of P600 and a credit to
Cash of P600.

c.       The same as the original payment A -

Consumption of utilities in December of the C -

current year to be paid next year.
 d. All statements are true C -

They work different hours B -

Concerned with general-purpose reports C -

Recorded because they involve exchanges of C -

values between the entity and another party

Generates general-purpose reports B -

Vandalism B -

I, II, III & IV B -

Cash, Inventory, Accounts Payable, E. Go D -
Capital, Sales Revenue, Cost of Sales

Management accounting B -

An asset can provide future benefits to an C -

entity.

Book of secondary entry A -

Adjusting the records C -

Debit an asset and credit a liability D -

Total assets increased by P280,000. D -

It proves that debits and credits of equal B -

amounts are in the ledger.
Contra asset and contra liability accounts, B -
respectively, that assist in the analysis of the
financial progress of the firm.
(2), (3) and (4) B -

The Auditing and Assurance Standards C -

Council (AASC)

I, II and III B -

I, II and III B -

Cash basis B -
Accountants use duality and equality D -
principles in analysis and recognition of
accountable events.

Financial statements, as far as possible, B -

should show information that can be verified
from documentary evidence in order to gain
the confidence of statement users.

An asset is exclusively owned by an entity. B -

Placing a debit amount into the credit D -

balance column of the ledger.
Debits Cash and credits Unearned Revenues D -

Journal D -

Determine at what point a transaction should C -

be recorded
Withdrawal of P80,000 by the firm's owner B -

External auditor B -

P14,517 debit and P15,477 credit A -

The cost of the asset is allocated to an D -

expense account
Understatement of profit for the period B -

The original cost minus accumulated D -

depreciation
Liabilities would be understated C -

Recording revenue at the time payment is C -

received
Expense and liability D -

An increase in another asset A -

Reduction of cash balance C -

Accounting is useful only to profit-oriented D -

organizations.

All of the above. D -

Basic accounting assumptions. A -

Matching concept B -

Statement of cash flows B -

When cash is collected from the customer A -

All of the above D -

Income, expenses and equity. B -

Paid utilities expense incurred A -

Increase in gain A -

Decrease in asset and liability. B -

Signs of the monetary unit or peso signs. D -

None of the above. A -

Assets, capital, drawing, and expenses C -

A transaction was not recorded. C -

The columns of the trial balance were not C -

properly added.

It helps in gathering financial data that are C -

verifiable.
Unearned commission D -

Overstated profit and overstated liabilities. A -

Unused office supplies C -

Doubtful accounts D -

Income method. B -

Income method. A -

Overstated asset and understated profit. C -

Income, expenses, and losses D -

It is not necessary to close the nominal C -

accounts every time financial statements are
prepared.
Conservative A -

It is measurable in terms of money C -

They are the primary responsibility of both D -

management and the external auditor after
audit.

It permits some assets to be classified as D -

current even though they are more than one
year removed from becoming cash

Journal B -

Debit an asset and credit a liability D -

Unearned service fee C -

It is the basis for any adjustments to the D -

account balances
Overstating a liability balance by P100 and A -
expense balance by the same amount.

A contra account is used to be able to report A -

both the gross and the net values of an item.

Cannot be longer than 12 months. C -

Prepaid insurance B -

It is not necessary to close the nominal D -

accounts every time financial statements are
prepared.

As a part of the closing process, real C -

accounts are ruled and balanced.
All of the above C -

Real accounts and nominal accounts B -

Decrease in asset and liability. A -

Applies only to partnerships and B -

corporations, but not to single
proprietorships.

All of the above. D -

Increase in equity D -

A posting reference in the journal indicates C -

the number or code of the destination ledger
account where the sorting process is done.

A compilation or group of similar accounts is C -

called a special ledger.

Instead of preparing a trial balance of C -

account balances, the accountant may
prepare a trial balance of total postings.

Liabilities, drawing, revenues, and gains C -

A debit entry of P7,500 was posted to the D -

credit side of the ledger account
1 Which of the following best describes the
attributes of a partnership?
2 A partner who takes active part in the
business but whose connection to the
partnership is concealed to the public is
known as a (an)

3 Every partner is assumed as an agent of the

partnership for the purposes of its business.
4 A partner’s withdrawal of assets from a
partnership that is considered a permanent
reduction in partner’s equity is debited to the
partner’s

5 A person may become a partner in a

partnership by all of the following methods,
except

6 If the partners have not drawn up an

agreement, then they must share profits and
losses

7 If the total contributed capital exceeds the

agreed capital with the new partner's
investment the same as his capital credit,
then the admission of the new partner
involves

8 If the capital credit of the new partner is less

than his contribution with no adjustment in
asset values, then the admission results in

9 A partner retires from the partnership and

the final settlement is more than his capital
interest. Under the bonus method, the
excess

10 A capital deficiency in partnership liquidation

can be eliminated by the following except

11 A partnership is an association of two or

more persons who carry on as co-owners of a
business for profit. The persons who form the
partnership may be: I.
Individuals II.
Corporations III.
Fraternal nonprofit organization
12 A partnership is formed by two individuals
who were previously sole propiretors.
Property other than cash that is part of the
initial investment in the partnership is
recorded for financial accounting purposes at
the:

13 Salaries to partners of a partnership typically

should be accounted for as
14 The partnership provides that "net income or
losses are to be distributed in the ratio of
partners' capital account balances." The
appropriate interpretation of this provision is
that net income or losses should be
distributed in

15 If there is a provision for division of profits

but not losses in the partnership agreement,
it is concluded that

16 When the investment of a new partner

exceeds the new partner's initial capital
balance and goodwill is not recorded, who
will receive the bonus?

17 If a new partner purchases his interest from

an old partner, the only entry on the
partnership books is a credit to the
purchaser’s capital account with a debit to

18 In a partnership liquidation, the realization

losses result in a debit balance in one
partner's capital account. If this partner fails
to contribute personal assets to make up this
deficit, how should the debit balance be
handled by the partners?

19 What is the rule of offset?

20 If Cardona, a partner with a loan receivable

from a liquidating partnership, receives less
cash than the amount of the loan during the
liquidation, the payment is recorded with a
debit to

21 The par value of common stock represents

22 Which of the following would not be
considered a characteristic of a corporation?

23 Which of the following is not typically a

characteristic of preference shares?
24 If shares are issued for noncash
consideration, the proceeds shall be
measured by the

25 Which of the following is an appropriate

presentation of treasury stock?
26 At the date of the financial statements,
common stock shares issued would exceed
common stock shares outstanding as a result
of the

27 Select the statement that is incorrect

concerning the appropriations of retained
earnings.

28 Share capital dividends declared but not yet

distributed as of the statement of financial
position date should be reported as a(an)

29 The peso equity in corporate capital for each

share capital owned by a shareholder is
known as

30 When a portion of stockholders' original

investment is returned in the form of a
dividend, it is called a

31 When a dividend is declared and paid in

stock,
32 Unlike a stock split, a stock dividend requires
a formal journal entry in the financial
accounting records because

33 The work sheet of PSI Company shows

Income Tax Expense of P9,000 and Income
Tax Payable of P9,000 in the Adjustments
columns. What will be the ultimate
disposition of these items on the work sheet?
34 The Supplies on Hand account balance at the
beginning of the period was P6,600. Supplies
totaling P12,825 were purchased during the
period and debited to Supplies on Hand. A
physical count shows P3,825 of Supplies on
Hand at the end of the period. The proper
journal entry at the end of the period

35 Arid Company paid P1,704 on June 1, 2009,

for a two-year insurance policy and recorded
the entire amount as Insurance Expense. The
December 31, 2009, adjusting entry is

36 Moon Company purchased equipment on

November 1, 2009, by giving its supplier a
12-month, 9 percent note with a face value
of P48,000. The December 31, 2009,
adjusting entry is

37 In November and December 2009, Bee

Company, a newly organized newspaper
publisher, received P72,000 for 1,000 three-
year subscriptions at P24,000 per year,
starting with the January 2, 2010, issue of the
newspaper. How much should Bee report in
its 2009 income statement for subscription
revenue?
38 Winston Company sells magazine
subscriptions for one- to three-year
subscription periods. Cash receipts from
subscribers are credited to Magazine
Subscriptions Collected in Advance, and this
account had a balance of P9,600,000 at
December 31, 2009, before year-end
adjustment. Outstanding subscriptions at
December 31, 2009, expire as follows:
During 2010
2,600,000 During 2011
3,200,000 During
2012 1,800,000
In its December 31, 2009, balance sheet,
what amount should Winston report as the
balance for magazine subscriptions collected
in advance?

39 On September 1, 2008, Star Corp. issued a

note payable to PISO Bank in the amount of
P450,000. The note had an interest rate of 12
percent and called for three equal annual
principal payments of P150,000. The first
payment for interest and principal was made
on September 1, 2009. At December 31,
2009, Star should record accrued interest
payable of

40 Teller Inc. reported an allowance for doubtful

accounts of P30,000 (credit) at December 31,
2009, before performing an aging of
accounts receivable. As a result of the aging,
Teller Inc. determined that an estimated
P52,000 of the December 31, 2009, accounts
receivable would prove uncollectible. The
doubtful accounts expense for the year
would be
41 Aqua, Blue and Cherry form a partnership on
June 1, 2009. They agree that Aqua will
contribute office equipment with a total fair
value of P60,000, Blue will contribute
delivery equipment with a fair value of
P120,000 and Cherry will contribute cash. If
Cherry wants a one-third interest in the
capital and profits of the firm, she should
contribute cash amounting to

42 On Sept. 30, 2009, Bee admits Lee for an

interest in his business. On this date, Bee's
capital account shows a balance of P158,400.
The following were agreed upon before the
formation of the partnership:
1. Prepaid expenses of P17,500 and
accrued expenses of P5,000 are to be
recognized. 2. Five per cent (5%) of
outstanding accounts receivable of Bee
amounting to P100,000 is to be recognized
as uncollectible. 3. Lee is
to be credited with a one-third interest in the
partnership and is to invest cash aside from
the P50,000 worth of merchandise. The
amount of cash to be invested by Lee and
the total capital of the partnership are

43 JJ and RR formed the JR Partnership on Jan. 3,

2009 with cash investments of P120,000 and
P180,000, respectively. On Dec. 31, 2009,
the net income of the partnership was
P69,600. The net income included an
extraordinary gain of P12,000. What is the
share of JJ in the net income, if income before
extraordinary items is shared equally
between JJ and RR after allowance of 20
percent bonus to RR based on income before
extraordinary items after the bonus.
Extraordinary items are shared on the basis
of original investment.
44 Sam, a partner in the ST Partnership, is
entitled to 40% of the profits and losses.
During 2009, Sam contributed land with a
fair value of P60,000. Also, during 2009, Sam
had drawings of P80,000. The balance of
Sam's capital account was P120,000 at the
beginning of 2009 and P150,000 at the end
of the year. What is the partnership's profit
(loss) for the period?

45 A partner retired from ABC Partnership and

received an amount which exceeds his
capital interest by P40,000. The remaining
partners, B and C, have profit and loss ratio
of 3:2. Under the bonus method, the excess
payment will be shared by partners B and C
as follows:

46 The partners Dantes, Diaz, and Drilon have

capital account balances of P70,000,
P100,000 and P80,000, and share profits and
losses in the ratio of 3:5:2, respectively. With
the consent and knowledge of Dantes and
Diaz, Drilon sold his interest to Diego. Drilon
was paid P92,000 in cash. The new capital
balances would be

47 A, B, C, and D are partners sharing profits

and losses in the ratio of 3:4:6:8,
respectively. Their capital balances on Dec.
31, 209 are as follows: A, P500; B, P12,500;
C, P12,500; and D, P4,500. The partners
decide to liquidate their firm and accordingly
convert the noncash assets into 11,600 cash.
After paying liabilities of P1,500, they have
P11,100 to divide. What is the gain (loss) on
realization?
48 After all noncash assets have been converted
into cash in the liquidation of XY Partnership,
the ledger contains the following balances:
Cash, P141,000; Accounts Payable, P96,000;
Loan Payable to X, P45,000; X, Capital,
P(21,000) deficit; Y, Capital, P21,000. The
available cash should be distributed with
P96,000 going to accounts payable and

49 Following are the account balances for NEA

Partnership on June 4, 2009:
Cash 6,000
Other assets 94,000
Liabilities
20,000 Eva, Loan
4,000 Nora, Capital
27,000 Eva, Capital
39,000 Ana,
Capital 10,000
The partners share net income and losses
in the ratio of 4:4:2 to Nora, Eva, and Ana,
respectively. On June 4, 2009, other assets
were sold for P30,700 and P20,500 had to be
paid to liquidate the liabilities and
unrecorded claims amounting to P500. Nora
and Eva are personally solvent, but Ana's
personal liabilities exceed personal assets by
P6,000. How much cash should be distributed
to partners?

50 On June 1, Mason Company issued 8,000

shares of its P10 par common stock to Dixon
for a tract of land. The stock had a fair
market value of P18 per share on this date.
On Dixon's last property tax bill, the land was
assessed at P96,000. Mason should record an
increase in Additional Paid-In Capital of
51 Dream Corporation was organized on Jan. 1,
2010 with authorized capital of P2,000,000
consisting of 100,000 ordinary shares, P20
par value. Subsequently, incorporators
subscribed for 25,000 shares at P24. How
much must be paid up upon subscription to
comply with the requirements of the SEC?

52 Harris Corporation was organized on January

3, 2010, with authorized capital of 100,000
shares of P10 par common stock. During
2010, Harris had the following transactions
affecting stockholders' equity:
January 7--Issued 40,000 shares at P12 per
share
December 2--Purchased 6,000 shares
of treasury stock at P13 per share
The cost method was used to record
the treasury stock transaction. Harris's net
income for 2010 is P300,000. What is the
amount of stockholders' equity at December
31, 2010?

53 Thunder Corporation holds 10,000 shares of

its P10 par common stock as treasury stock,
which was purchased in 2009 at a cost of
P120,000. On December 10, 2010, Thunder
sold all 10,000 shares for P210,000.
Assuming that Thhunder used the cost
method of accounting for treasury stock, this
sale would result in a credit to

54 On December 10, Daniel Co. split its stock 5-

for-2 when the market value was P65 per
share. Prior to the split, Daniel had 200,000
shares of P15 par value stock. After the split,
the par value of the stock was
55 On July 1, Rainbow Corporation issued 2,000
shares of its P10 par common and 4,000
shares of its P10 par preferred stock for a
lump sum of P80,000. At this date, Rainbow's
common stock was selling for P18 per share
and the preferred stock for P13.50 per share.
The amount of proceeds allocated to
Rainbow's preferred stock should be

56 Claire Co. owned 30,000 common shares of

Dalton Corporation purchased in 2007 for
P540,000. On September 20, 2010, Claire
declared a property dividend of 1 share of
Dayton for every 5 shares of Claire stock held
by a stockholder. On that date, there were
50,000 common shares of Claire outstanding,
and the market value of Dalton shares was
P30 per share. The entry to record the
declaration of the property dividend would
include a debit to Retained Earnings of

57 The Grandson Corporation had the following

classes of stock outstanding as of December
31, 2010:
Common stock, P20 par value, 20,000 shares
outstanding
Preferred stock, 6 percent,
P100 par value, cumulative, 2,000 shares
outstanding No dividends were paid on
preferred stock for 2008 and 2009. On
December 31, 2010, a total cash dividend of
P200,000 was declared. What are the
amounts of dividends payable on both the
common and preferred stock, respectively?
58 On June 30, 2010, Ciara Co. declared and
issued a 10 percent stock dividend. Prior to
this dividend, Ciara had 60,000 shares of P10
par value common stock issued and
outstanding. The market value of Ciara Co.'s
common stock on June 30, 2010, was P24 per
share. As a result of this stock dividend, by
what amount would Ciara's total
stockholders' equity increase (decrease)?

59 Beldon Co. was organized on January 2,

2009, with the following capital structure:
10 percent cumulative preferred stock,
par value P100, and liquidation value P105;
issued and outstanding, 2,000 shares
Common stock, par value P25; authorized
100,000 shares; issued and outstanding
20,000 shares
Beldon's net income for the year ended
December 31, 2009, was P900,000, but no
dividends were declared. Beldon's balance
sheet would report Dividends Payable at
December 31, 2009, of

60 Cobra Corporation was organized on January

1, 2008, at which date it issued 100,000
shares of P10 par common stock at P15 per
share. During the period January 1, 2008,
through December 31, 2010, Cobra reported
net income of P450,000 and paid cash
dividends of P230,000. On January 10, 2010,
Cobra purchased 6,000 shares of its common
stock at P12 per share. On December 31,
2010, Cobra sold 4,000 treasury shares at P8
per share. Cobra uses the cost method of
accounting for treasury shares. What is
Cobra's total stockholders' equity on
December 31, 2010?
Unlimited life of the business and unlimited
liability of the partners.
Silent partner

Mutual agency

Drawing account

Investing in the partnership with a bonus to

the new partner.

Equally.

Positive asset revaluation

Bonus to the old partners.

Is recorded as gain.

Offsetting against a partner's loan.

I only
Book value or fair value of the property at the
date of the investment, whichever is higher.

A device for sharing net income.

The ratio of original capital account balances.

Losses should be allocated according to the

ratio of capital balances.

The new partner.

Bonus account

It should be written off against partnership

profits like any other bad debt.

Receivables from partners should offset

against their debit capital balances before
they receive any cash distribution.

Loan receivable from Cardona

The liquidation value of the stock.

Separate legal entity

Preference as to dividends

Fair value of the shares issued.

As a marketable security

Declaration of a stock split.

Appropriations of retained earnings do not

change the total amount of stockholders'
equity.

Current liability

Book value per share

Compensating dividend.

Stockholders' equity does not change.

Stock dividends increase the relative book

value of an individual's stock holdings.

Income Tax Expense will appear as a debit of

P9,000 and Income Tax Payable as credit in
the Balance Sheet columns.
Debits Supplies on Hand and credits Supplies
Expense for P9,000.

Debit Prepaid Insurance and credit Insurance

Expense, P497.

Debit Interest Expense and credit Cash,

P720.

P0
P2,000,000

P11,000

P22,000
P270,000

P32,950 and P248,850, respectively

P27,840
(P75,000)

P36,000 and P24,000

P70,000, P100,000, and P92,000 for Dantes,

Diaz, and Diego, respectively.

(P11,250)
P45,000 to the Loan Payable to X

P1,480; P17,480; and P0 to Nora, Eva, and

Ana respectively

96,000.00
P600,000

P640,000

Paid-In Capital from Treasury Stock of

P90,000.

3
P40,000

P0

P0 and P200,000
P0

P90,000

P1,720,000
Unlimited life of the business and limited Limited life of the business and limited
liability of the partners. liability of the partners.
Secret partner Nominal partner

Unlimited liability Co-ownership

Loan receivable account Capital account

Making a loan to the partnership. Investing in the partnership with bonus to the
old partners.

By any means that will save taxes. By any appropriate ratio.

Negative asset revaluation Bonus to the old partners.

Bonus to the new partner. No bonus.

Reduces the capital balances of the Increases the capital balances of the
remaining partners remaining partners

Additional investment. Selling noncash assets at a gain.

I and III I, II, and III

Book value or fair value of the property at Book value of the property at the date of
the date of the investment, whichever is investment.
lower.

An operating expense of the partnership. Drawings by the partners from the

partnership.
The ratio of ending capital account balances. The ratio of average capital account
balances.

Losses should be divided equally. Losses should be divided using the same
approach as division of profits.

The old partners in their old profit and loss The old partners in their new profit and loss
ratio. ratio.

Cash account Capital account of the selling partner

It should be allocated to all the partners in It should be allocated to the remaining

their profit and loss ratio. partners in their remaining profit and loss
ratio.

Loansfrom partners should offset against Loans to partners should offset against their
their debit capital balances before they debit capital balances before they receive
receive any cash distribution. any cash distribution.

Loan Payable to Cardona Cardona, Drawing

The book value of the stock. The legal nominal value assigned to the
stock.
Mutual agency Limited liability of shareholders

Cumulative and callable terms Preference as to voting rights

Fair value of the noncash consideration Par value of the shares issued
received

As a deduction at cost from total As a deduction at cost from total contingent

stockholders' equity liabilities
Declaration of a stock dividend. Purchase of treasury stock.

Appropriations of retained earnings reflect Appropriations of retained earnings can be

funds set aside for a designated purpose, made as a result of contractual
such as plant expansion. requirements.

Addition to share capital outstanding noncurrent liability

Dividends per share Earnings per share

Liquidating dividend. Property dividend.

Total stockholders' equity decreases. The current ratio increases.

Stock dividends increase the stockholders' Stock dividends are payable on the date they
equity in the issuing firm. are declared.

Income Tax Expense will appear as a debit of Income Tax Expense will appear as a debit of
P9,000 and Income Tax Payable as credit in P9,000 in the Balance Sheet columns and
the Income Statement columns. Income Tax Payable as credit in the Income
Statement columns.
Debits Supplies Expense and credits Supplies Debits Supplies on Hand and credits Supplies
on Hand for P12,825. Expense for P15,600.

Debit Insurance Expense and credit Prepaid Debit Insurance Expense and credit Prepaid
Insurance, P497. Insurance, P1,207.

Debit Interest Expense and credit Interest Debit Interest Expense and credit Interest
Payable, P720. Payable, P1,080.

P24,000 P72,000
P3,800,000 P7,600,000

P12,000 P16,500

P30,000 P52,000
P90,000 P180,000

P55,300 and P221,200, respectively P82,950 and P248,850, respectively

P32,640 P28,800
(P50,000) P150,000

P24,000 and P16,000 P12,000 and P8,000

P73,800, P160,000, and P82,400 for Dantes, P70,000, P100,000, and P80,000 for Dantes,
Diaz, and Diego, respectively. Diaz, and Diego, respectively.

P18,900 (P18,900)
P22,500 each to X and Y P24,000 to X and P21,000 to Y

P100; P16,100; and P2,760 to Nora, Eva, and P100; P16,100; and P0 to Nora, Eva, and Ana
Ana respectively respectively

64,000.00 40,000.00
P125,000 P500,000

P702,000 P708,000

Paid-In Capital from Treasury Stock of Gain on Sale of Treasury Stock of P90,000.
P110,000.

6 15
P48,000 P54,000

P300,000 P360,000

P164,000 and P36,000 P176,000 and P24,000

P60,000 P84,000

P20,000 P2,000

P1,704,000 P1,688,000
Limited life of the business and unlimited D -
liability of the partners.
Ostensible partner B -

Association A -

Loan payable account C -

Purchasing a partner’s interest. B -

According to capital contributions. D -

Bonus to the new partner. B -

Both A and B A -

Is recorded as an expense. B -

Loss to the other partners. D -

I and II A -
Fair value of the property at the date of D -
investment.

Reductions of the partners' capital balances. A -

The ratio of beginning capital account C -

balances.

Losses should not be divided to the capital C -

accounts but matched against future
earnings.

The old and new partners in their new profit C -

and loss ratio.

Capital account of the buying partner C -

It should be set up as a receivable and C -

turned over to a collection agency.

Loans from partners should offset against B -

their credit capital balances before they
receive any cash distribution.

Cardona, Capital B -

The amount received by the corporation C -

when the stock was originally issued.
Both A and B B -

Preference over ordinary shareholders C -

during liquidation
Cost of the noncash consideration received B -

As a deduction at par from total B -

stockholders' equity
Payment in full of subscribed stock. C -

Appropriations of retained earnings can be B -

made at the discretion of the board of
directors

reduction in total shareholders’ equity B -

None of these A -

Equity dividend. B -

The amount of working capital decreases. A -

Stock dividends represent a transfer from D -

Retained Earnings to Capital Stock.

Income Tax Expense will appear as a debit of D -

P9,000 in the Income Statement columns
and Income Tax Payable as credit in the
Balance Sheet columns.
Debits Supplies Expense and credits Supplies D -
on Hand for P15,600.

Debit Prepaid Insurance and credit Insurance D -

Expense, P1,207.

Debit Interest Expense and credit Interest B -

Payable, P4,320.

P12,000 A -
P9,600,000 C -

P18,000 B -

P82,000 A -
P60,000 B -

P32,950 and P171,200, respectively A -

P24,000 C -
P125,000 D -

P48,000 and P32,000 B -

P70,000, P100,000, and P172,000 for C -

Dantes, Diaz, and Diego, respectively.

(P18,400) C -
P21,000 to X and P24,000 to Y C -

P1,480; P16,100; and P0 to Nora, Eva, and C -

Ana respectively

16,000.00 b -
P150,000 B -

P720,000 B -

Retained Earnings of P90,000. a -

26 B -
P60,000 B -

P540,000 B -

P188,000 and P12,000 B -

(P84,000) A -

P0 D -

P1,680,000 D -
1 The overall objective of financial reporting is
to provide information
2 Financial accounting is the area of
accounting that emphasizes reporting to
3 The responsibility to review the work of the
accountants and issue opinions as to the
fairness of the financial statements rests
with

4 Which of the following is an internal user of a

company's financial information?
5 The process of establishing financial
accounting standards

6 Accountants prepare financial statements at

arbitrary points in time during a company's
lifetime in accordance with the accounting
concept of

7 When a large number of individuals, using

the same measurement method,
demonstrate that a high degree of consensus
can be secured among independent
measurers, then the result exhibits the
characteristic of

8 An item would be considered material and

therefore would be disclosed in the financial
statements if

9 The overriding qualitative characteristic of

accounting information is
10 The singularly unique function performed by
certified public accountants is
11 In an accrual accounting system

12 Failure to record the expired amount of

prepaid rent expense would not
13 The debit and credit analysis of a transaction
normally takes place
14 An accrued expense can be described as an
amount
15 The use of computers in processing
accounting data
16 A Company showed a large restructuring
charge on its income statement in 2007 and
has experienced a constantly rising earnings
trend since that time. This would most
nearly represent an example of

17 Which of the following is typically associated

with cookie jar reserves?
18 An operating cycle

19 If the balance shown on a company's bank

statement is less than the correct cash
balance, and neither the company nor the
bank has made any errors, there must be

20 When the direct write-off method of

recognizing bad debt expense is used, the
entry to write off a specific customer account
would

21 A method of estimating bad debts that

focuses on the balance sheet rather than the
income statement is the allowance method
based on

22 Which of the following items would be added

to the book balance on a bank reconciliation?

23 Bank reconciliations are normally prepared

on a monthly basis to identify adjustments
needed in the depositor's records and to
identify bank errors. Adjustments should be
recorded for

24 Which of the following best describes the

condition(s) that must be present for the
recognition of revenue?

25 The use of the gross profit method assumes

26 When the current year's ending inventory

amount is overstated,
27 What is the maximum amount at which
inventory can be valued when the goods
have experienced a permanent decline in
value?
28 For a liability to exist,

29 Bloomer Co. has a P2,000,000, two-year note

payable to Second City Bank that matures
June 30, 2011. Bruemmer's management
intends to refinance the note for an
additional three years and is negotiating a
financing agreement with Second City. In
order to exclude this note from current
liabilities on its December 31, 20011,
balance sheet, Bruemmer Co. must

30 Kenwood Co. neglected to amortize the

premium on outstanding ten-year bonds
payable. What is the effect of the failure to
record premium amortization on interest
expense and bond carrying value,
respectively?

31 The market price of a bond issued at a

discount is the present value of its principal
amount at the market (effective) rate of
interest

32 For a bond issue that sells for more than its

par value, the market rate of interest is
33 When interest expense is calculated using
the effective-interest amortization method,
interest expense (assuming that interest is
paid annually) always equals the

34 Which of the following shareholder rights is

most commonly enhanced in an issue of
preferred stock?

35 The full amount of compensation expense

incurred in a compensatory stock option plan
under the intrinsic value method is known at

36 An adjustment to retained earnings as a

result of a conversion of preferred stock to
common stock most likely would occur when
37 Farnon Company has not declared or paid
dividends on its cumulative preferred stock
in the last three years. These dividends
should be reported

38 Gains and losses on the purchase and resale

of treasury stock may be reflected only in

39 Stock warrants outstanding should be

classified as
40 At the date of the financial statements,
common stock shares issued would exceed
common stock shares outstanding as a result
of the

41 Select the statement that is incorrect

concerning the appropriations of retained
earnings.

42 When a property dividend is declared and

the book value of the property exceeds its
market value, the dividend is recorded at the

43 On July 31, 2010, Lakers Corporation

purchased 500,000 shares of Celtic
Corporation. On December 31, 2010, Lakers
distributed 250,000 shares of Celtic stock as
a dividend to Lakers' stockholders. This is an
example of a

44 When a dividend is declared and paid in

stock,
45 Unlike a stock split, a stock dividend requires
a formal journal entry in the financial
accounting records because

46 A company declared a cash dividend on its

common stock in December 2004, payable in
January 2005. Retained Earnings would

47 Kramer Service Corporation bought a

building lot to construct a new corporate
office building. An older home on the
building lot was razed immediately so that
the office building could be constructed. The
cost of purchasing the older home should be
48 Goodwill should be recorded in the
accounting records only when

49 If the cost of ordinary repairs is capitalized as

an addition to the building account during
the current year,

50 A company purchased land to be used as the

site for the construction of a plant. Timber
was cut from the building site so that
construction of the plant could begin. The
proceeds from the sale of the timber should
be

51 Which of the following principles best

describes the current method of accounting
for research and development costs?

52 An improvement made to a machine

increased its fair market value and its
production capacity by 25 percent without
extending the machine's useful life. The cost
of the improvement should be

53 Which of the following concepts is often

given as justification not to value noncurrent
operating assets at their current values?

54 Which of the following is correct?

55 Depreciation of noncurrent operating assets

is an accounting process for the purpose of
56 Information needed to compute a depletion
charge per unit includes the
57 In order to calculate the third year's
depreciation on an asset using the sum-of-
the-years'-digits method, which of the
following must be known about the asset?

58 A method that ignores salvage value in

calculating periodic depreciation expense is
the
59 Which of the following depreciation methods
applies a uniform depreciation rate each
period to an asset's book value?

60 Which of the following reasons provides the

best theoretical support for accelerated
depreciation

61 When the estimate of an asset's useful life is

changed,

62 When an exchange of similar assets involves

a gain,
63 In recording the trade of one asset for
another, which of the following accounts is
usually debited?

64 Which securities are purchased with the

intent of selling them in the near future?
65 Changes in fair value of securities are
reported in the stockholders' equity section
of the balance sheet for which type of
securities?

66 Which category includes only debt

securities?
67 When an investor uses the cost method to
account for investments in common stock,
cash dividends received by the investor from
the investee should normally be recorded as

68 The equity method of accounting for an

investment in the common stock of another
company should be used when the
investment

69 If the combined market value of trading

securities at the end of the year is less than
the market value of the same portfolio of
trading securities at the beginning of the
year, the difference should be accounted for
by

70 Which of the following is true?

71 On August 1, 2009, Colorite Corp. acquired
10,000 of the outstanding shares of Brown
Co. On January 2, 2010, Colorite acquired an
additional 20,000 shares of Brown Co., which
brought the total ownership to 30,000
shares. Using the normal guidelines for
percentages of ownership and assuming that
Brown Co. had 100,000 shares outstanding
during 2009 and 2010, Colorite Corp. should
account for the investment in Brown Co. by

72 Poster Inc. owns 35 percent of Elliott

Corporation. During the calendar year 2010,
Elliott had net earnings of P300,000 and paid
dividends of P36,000. Poster mistakenly
accounted for the investment in Elliott using
the cost method rather than the equity
method of accounting. What effect would this
have on the investment account and net
income, respectively?

73 If an investment in stock is reclassified from

available-for-sale securities to trading
securities, the stock should be recorded on
the date it is reclassified at the

74 Kyle Company reports its income from its

investment in Bingham Company under the
equity method. Kyle recognized income of
P150,000 from its investment in Bingham
during the current year. No dividends were
declared or paid by Bingham during the year.
Kyle would show the P150,000 in its
statement of cash flows for the current year
prepared under the indirect method as

75 Generally accepted accounting principles

require that certain lease agreements be
accounted for as purchases. The theoretical
basis for this treatment is that a lease of this
type

76 Which of the following statements

characterizes an operating lease?
77 In a lease that is recorded as an operating
lease by the lessee, the equal monthly rental
payments should be

78 For a capital lease, the amount recorded

initially by the lessee as a liability should

79 Johnson Institute leased a new machine

having an expected useful life of 12 years.
The noncancelable lease term is 10 years,
and Johnson may exercise a purchase option
at the end of the noncancelable term. The
machine should be capitalized by Johnson
and depreciated over

80 What are the three types of period costs that

a lessee experiences with capital leases?
81 An eight-year capital lease specifies equal
minimum annual lease payments. Part of this
payment represents interest and part
represents a reduction in the net lease
liability. The portion of the minimum lease
payment in the fourth year applicable to the
reduction of the net lease liability should be

82 The purpose of an interperiod income tax

allocation is to

83 Which of the following temporary differences

ordinarily creates a deferred tax asset?
84 An example of a "deductible temporary
difference" occurs when

85 An item that would create a permanent

difference in pretax financial and taxable
incomes would be

86 Which of the following is the most likely item

to result in a deferred tax asset?
87 Which of the following accounting principles
best describes the rationale for reporting a
liability for earned but unused compensated
absences?

88 BLack Corp. follows the practice of paying all

employees for vacation. The vacation pay is
not vested, but it carries over for one year if
unused. Under GAAP, the obligation for
earned but unused vacation should be

89 Which of the following statements

characterizes defined contribution plans?

90 If the actual return on pension fund assets

exceeds the expected return for the period,
the difference is

91 Which of the following is not a component of

net periodic pension cost?
92 The vested benefits of an employee in a
pension plan represent benefits
93 Uncertainty about the future market value of
an asset is referred to as
94 A contract, traded on an exchange, that
allows a company to buy a specified quantity
of a commodity or a financial security at a
specified price on a specified future date is
referred to as a(n)

95 In exchange for the rights inherent in an

option contract, the owner of the option will
typically pay a price

96 When gains or losses on derivatives

designated as fair value hedges exceed the
gains or losses on the item being hedged,
the excess

97 When computing earnings per share on

common stock, dividends on cumulative,
nonconvertible preferred stock should be

98 The main purpose of reporting diluted

earnings per share is to
99 Which of the following should be reported as
a change in accounting estimate?

100 Which of the following concepts or principles

relates most directly to reporting accounting
changes and errors?
that is useful for decision making. about an enterprise's assets, liabilities, and
owners' equity.
management. regulatory bodies.

the external auditor. the board of directors.

Board of directors. Stockholders in the company.

is a democratic process in that a majority of is a legislative process based on rules

practicing accountants must agree with a promulgated by government agencies.
standard before it becomes implemented.

matching. comparability.

verifiability. neutrality.

the expected benefits of disclosure exceed the impact on earnings is greater than 3
the additional costs. percent.

relevance. understandability.

tax preparation. management advisory services.

all accounts have normal debit balances. a debit entry is recorded on the left-hand
side of an account.
understate expense. overstate net income.

en the entry is posted to a subsidiary ledger. when the entry is recorded in a journal.

paid and matched with earnings for the paid and not matched with earnings for the
current period. current period.
eliminates the need for accountants. eliminates the double entry system as a
basis for analyzing transactions.
cookie jar reserves. creative acquisition accounting.

Purchased in-process research and Recognizing very high bad debt expense
development when earnings are high
is twelve months or less in length. is the average time required for a company
to collect its receivables.
deposits credited by the bank but not yet outstanding checks.
recorded by the company.

increase net income. have no effect on net income.

direct write-off. aging the trade receivable accounts.

Outstanding checks A check written for $63 entered as $36 in the

accounting records

bank errors, outstanding checks, and all items except bank errors, outstanding
deposits in transit. checks, and deposits in transit.

The revenue must be earned, measurable, The revenue must be earned, measurable,
and collected. and collectible.

the amount of gross profit is the same as in sales and cost of goods sold have not
prior years. changed from previous years.
the current year's cost of goods sold is the current year's total assets are
overstated. understated.
Historical cost Sales price
a past transaction or event must have the exact amount must be known.
occurred.
pay off the note and complete the demonstrate an ability to refinance the
refinancing before the 2010 financial obligation before the 2010 financial
statements are issued. statements are issued.

Understate; understate Understate; overstate

plus the present value of all future interest plus the present value of all future interest
payments at the market (effective) rate of payments at the rate of interest stated on
interest. the bond

dependent on the rate stated on the bond. equal to the rate stated on the bond.

actual amount of interest paid. book value of the bonds multiplied by the
stated interest rate.

The right to vote for the board of directors. The right to maintain one's proportional
interest in the corporation.

the grant date. the measurement date.

par value of the preferred stock is high par value of the common stock is less than
relative to fair value of the common stock. the book value of the preferred stock.
in a note to the financial statements. as a reduction in stockholders' equity.

paid-in capital accounts. paid-in capital and retained earnings

accounts.

liabilities. reductions of capital contributed in excess of

par value.
declaration of a stock split. declaration of a stock dividend.

Appropriations of retained earnings do not Appropriations of retained earnings reflect

change the total amount of stockholders' funds set aside for a designated purpose,
equity such as plant expansion.

market value of the property at the date of book value of the property at the date of
distribution. declaration.

liquidating dividend. investment dividend.

stockholders' equity does not change. total stockholders' equity decreases.

stock dividends increase the relative book stock dividends increase the stockholders'
value of an individual's stock holdings. equity in the issuing firm.

increase on the date of declaration. not be affected on the date of declaration.

recorded as part of the cost of the land. written off as a loss in the year of purchase.
it is purchased from another company. it can be established that a definite benefit
or advantage has resulted to a firm from
some item such as a good name, capable
staff, or reputation.

net income for the current year will be stockholders' equity at the end of the current
understated. year will be understated.

classified as other income. netted against the costs to clear the land and
expensed as incurred.

Associating cause and effect Systematic and rational allocation

expensed. debited to Accumulated Depreciation.

The revenue principle Verifiability

The fair value of internally generated The fair value of internally generated
intangible assets should be estimated and intangible assets may be estimated but
recorded on the books of the entity that should not be recorded on the books or
developed the assets even in the absence of displayed on the financial statements of the
a business acquisition. entity.

reporting declining asset values on the allocating asset costs over the periods
balance sheet. benefited by use of the assets.
estimated total amount of resources amount of resources removed during the
available for removal. period.
Its acquisition cost Its estimated salvage value

productive-output method. group composite method.

Straight-line Units-of-production

Assets are more efficient in early years and Expenses should be allocated in a manner
initially generate more revenue. that "smooths" earnings.

depreciation expense for all past periods there is no change in the amount of
must be recalculated. depreciation expense recorded for future
years.

the recorded amount of the new asset is the the recorded amount of the new asset is its
cost of the old asset plus any cash paid. fair market value less any cash paid.
Accumulated Depreciation-Old Asset Cash

Marketable equity securities Available-for-sale securities

Marketable equity securities Available-for-sale securities

Marketable equity securities Available-for-sale securities

a deduction from the investment account. dividend revenue.

is composed of common stock and it is the ensures a source of supply such as raw
investor's intent to vote the common stock. materials.

reporting an unrealized loss in security reporting an unrealized loss in security

investments in the stockholders' equity investments in the income statement.
section of the balance sheet.

Trading securities can be classified as Held-to-maturity securities should not be

current of noncurrent depending on classified as current under any circumstance.
management's intent.
using the cost method in 2009 and the using the cost method in 2009, retroactively
equity method in 2010. adjusting the investment account to the
equity method at the beginning of 2010, and
using the equity method in 2010.

Understate, overstate Overstate, understate

market value at the date of acquisition. book value at the date of reclassification.

cash from investing activities. a reduction of the investment account.

effectively conveys all of the benefits and is an example of form over substance.
risks incident to the ownership of property.

The lessee records depreciation and interest. The lessee records the lease obligation
related to the leased asset.
allocated between interest expense and allocated between a reduction in the liability
depreciation expense. for leased assets and interest expense.

exceed the present value at the beginning of exceed the total of the minimum lease
the lease term of minimum lease payments payments during the lease term.
during the lease term.

9 years. 12 years.

Interest expense, amortization expense, Amortization expense, executory costs, lease

executory costs expense
the same as in the third year. less than in the third year.

allow reporting entities to fully utilize tax allow reporting entities whose tax liabilities
losses carried forward from a previous year. vary significantly from year to year to
smooth payments to taxing agencies.

Accrued warranty costs Depreciation

the installment sales method is used for tax accelerated depreciation is used for tax
purposes, but the accrual method of purposes but straight-line depreciation is
recognizing sales revenue is used for used for accounting purposes.
financial reporting purposes.

using accelerated depreciation for tax purchasing equipment previously leased with
purposes and straight-line depreciation for an operating lease in prior years.
book purposes.

Using accelerated depreciation for tax Using the completed-contract method of

purposes but straight-line depreciation for recognizing construction revenue tax
accounting purposes purposes, but using percentage-of-
completion method for financial reporting
purposes
Historical cost Full disclosure

accrued as a current liability. disclosed as a contingent liability.

They are more complex in construction than The employer's obligation is satisfied by
defined benefit plans. making the appropriate amount of periodic
contribution.

a deferred loss. a deferred gain.

Interest cost Actual return on plan assets

to be paid to the retired employee in the to be paid to the retired employee in

current year. subsequent years.
price risk. credit risk.

interest rate swap. forward contract.

only when a call option is exercised. only when a put option is exercised.

affects reported net income. is recognized as an equity adjustment.

deducted from net income only if the deducted from net income regardless of
dividends were declared or paid in the whether the dividends were not paid or
current period. declared in the period.

provide a comparison figure for debt holders. indicate earnings shareholders will receive in
future periods.
Change in the reported beginning inventory Change from the completed-contract method
amount due to a discovery of a bookkeeping to the percentage-of- completion method for
error revenue recognition on long-term
construction contracts

Conservatism Consistency
about an enterprise's financial performance during a
period.
internal auditors.

the internal auditors.

Holders of the company's bonds.

is based solely on economic analysis of the effects each

standard will have if it is implemented.

accounting periods.

relevance.

the FRSC definition of materiality is met.

reliability.

the attest function.

liabilities, owner's capital, and dividends all have normal

credit balances.
overstate owners' equity.

when the trial balance is prepared.

not paid and not matched with earnings for the current
period.
eliminates the need for financial reporting standards
such as those promulgated by the FRSC.
big bath accounting.

Recognizing revenue when a contract is signed prior to

delivery of goods or performance of services
is used to determine current assets when the operating
cycle is longer than one year.
deposits in transit.

increase the accounts receivable balance and increase

net income.

credit sales.

Interest paid by the bank

book errors, bank errors, deposits in transit, and

outstanding checks.

The revenue must be earned and collectible.

inventory values have not increased from previous

years.
the current year's net income is overstated.

Net realizable value

the identity of the party owed must be known.

complete the refinancing before the December 31, 2010

balance sheet date.

Overstate; overstate

minus the present value of all future interest payments

at the market (effective) rate of interest.

less than the rate stated on the bond.

book value of the bonds multiplied by the effective

interest rate.

The right to receive a full cash dividend before dividends

are paid to other classes of stock

the plan adoption date.

par value of the common stock exceeds the book value

of the preferred stock.
as a current liability.

income, paid-in capital, and retaining earnings accounts.

capital stock.

purchase of treasury stock.

Appropriations of retained earnings can be made as a

result of contractual requirements.

book value of the property at the date of distribution if it

still exceeds the market value of the property at the
date of declaration.

property dividend.

the current ratio increases.

stock dividends are payable on the date they are

declared.

not be affected on the date of payment.

written off as an extraordinary item in the year of

purchase.
it is acquired through the purchase of another business
entity.

total assets at the end of the current year will not be

affected.

deducted from the cost of the plant.

Income tax minimization

capitalized in the machine account.

Relevance

Managers may value their own companies and recognize

goodwill in the company accounts even though an entity
has not been acquired in a business acquisition

accounting for costs to reflect the change in general

price levels.
cumulative amount of resources removed.

Its estimated useful life

sum-of-the-years'-digits method.
Declining-balance

Repairs and maintenance costs will probably increase in

later periods, so depreciation should decline.

only the depreciation expense in the remaining years is

changed.

the recorded amount of the new asset is the net book

value of the old asset plus any cash paid.
Gain on Exchange of Asset

Trading securities

Trading securities

Trading securities

an addition to the investor's share of the investee's

profit.

enables the investor to exercise significant influence

over the investee.

a footnote to the financial statements.

Trading securities should not be classified as current

under any circumstance
using the equity method for 2009 and 2010.

Overstate, overstate

market value at the date of reclassification.

a deduction from net income in the operating activities

section.

provides the use of the leased asset to the lessee for a

limited period of time.

The lessor transfers title of the leased property to the

lessee for the duration of the lease term.
recorded as a reduction in the liability for leased assets.

not exceed the fair value of the leased property at the

inception of the lease.

10 years.

Executory costs, interest expense, lease expense

less than in the fifth year.

recognize an asset or liability for the tax consequences

of temporary differences that exist at the balance sheet
date.

Installment sales

warranty expenses are recognized on the accrual basis

for financial reporting purposes but recognized as the
warranty conditions are met for tax purposes.

using the percentage-of-completion method on long-

term construction contracts.

Prepaid expenses
Materiality

ignored until incurred.

The investment risk is borne by the employer.

recognized as a loss in the current period.

Benefits paid to retirees

to be paid from funds currently in the hands of an

independent trustee.
interest rate risk.

futures contract.

when either a call option or a put option is exercised.

is recognized as part of comprehensive income.

deducted from net income only if net income is greater

than the dividends.

distinguish between companies with a complex capital

structure and companies with a simple capital structure.
Increase in the rate applied to net credit sales from 1
percent to 1-1/2 percent in determining losses from
uncollectible receivables

Objectivity
that allows owners to assess management's A -
performance.
creditors and investors. D -

management. A -

Creditors with long-term contracts with the A -

company.
is a social process which incorporates D -
political actions of various interested user
groups as well as professional research and
logic.

materiality. C -

reliability. A -

the amount is deemed large enough to make D -

a difference to the users.

decision usefulness. D -

the preparation of financial statements. C -

revenues are recorded only when cash is B -

received.
understate liabilities. D -

when the financial statements are prepared. B -

not paid and matched with earnings for the D -

current period.
may result in the elimination of document D -
trails used to verify accounting records.
using immaterial transactions to increase C -
reported earnings to meet analysts'
expectations.

Proforma earnings B -

begins with inventory and ends with cash. C -

bank charges not yet recorded by the C -

company.

decrease the accounts receivable balance D -

and decrease net income.

specific accounts determined to be B -

uncollectible.

Deposits in transit C -

outstanding checks and deposits in transit. B -

The revenue must be measurable and B -

collectible.

the relationship between selling price and D -

cost of goods sold is similar to prior years.
the next year's income is overstated. C -

Net realizable value reduced by a normal C -

profit margin
an obligation to pay cash in the future must A -
exist.
complete the refinancing before the note's C -
maturity date.

Overstate; understate C -

minus the present value of all future interest A -

payments at the rate of interest stated on
the bond.

higher than the rate stated on the bond. C -

maturity value of the bonds multiplied by the C -

effective interest rate.

The right to vote on major corporate issues. C -

the date the options expire. B -

par value of the preferred stock is low C -

relative to fair value of the common.
as a noncurrent liability. A -

income and paid-in capital accounts. B -

additions to contributed capital. D -

payment in full of subscribed stock. C -

Appropriations of retained earnings can be B -

made at the discretion of the board of
directors

market value of the property at the date of D -

declaration.

stock dividend. C -

the amount of working capital decreases. A -

stock dividends represent a transfer from D -

Retained Earnings to Capital Stock.

decrease on the date of payment. C -

recorded as part of the cost of the new A -

building.
a firm reports above normal earnings for five C -
or more consecutive years.

total liabilities at the end of the current year D -

will not be affected.

deducted from the cost of the land. D -

Immediate recognition as an expense D -

allocated between Accumulated Depreciation C -

and the machine account.

Predictive value B -

Goodwill should be recognized in the B -

accounts whenever the value of the firm
increases based on current market prices of
the firm's common stock.

setting aside funds to replace assets when B -

their economic usefulness expires.
amount of resources sold during the period. A -

All the above must be known. D -

double-declining-balance method. D -
Sum-of-the-years'-digits C -

Accelerated depreciation provides easier A -

replacement because of the time value of
money

None of the above are true. C -

None of the above are true. C -

None of the above A -

Held-to-maturity securities C -

Held-to-maturity securities B -

Held-to-maturity securities D -

a deduction from the investor's share of the B -

investee's profit.

gives the investor voting control over the C -

investee.

a credit to Investment in Trading Securities. B -

Available-for-sale securities can be classified D -

as current or noncurrent depending on
management's intent.
using the cost method in 2009 and 2010 for B -
the 10,000 shares acquired in 2009, and
using the equity method in 2010 for the
20,000 shares acquired in 2010.

Understate, understate D -

lower-of-cost-or-market value at the date of c -

reclassification.

a noncash activity. C -

must be recorded in accordance with the A -

concept of cause and effect.

The lessor records depreciation and lease D -

revenue.
recorded as rental expense. D -

equal the total of the minimum lease C -

payments during the lease term.

10 or 12 years at Johnson's option. C -

Lease expense, executory costs, initial costs A -

more than in the fifth year. C -

amortize the deferred tax liability shown on C -

the balance sheet.

Prepaid insurance A -

the completed-contract method of C -

recognizing construction revenue is used for
tax purposes, but the percentage-of-
completion method is used for financial
reporting purposes.

paying fines for violation of laws. D -

Unearned revenues D -
Matching D -

accrued or not accrued according to the A -

judgment of management.

Contributions are made in equal amounts by B -

employer and employees.

recognized as a gain in the current period. B -

Amortization of prior service cost C -

that are not contingent on the employee's D -

continuing in the service of the employer.
exchange rate risk. A -

option. C -

at the time the option is received regardless D -

of whether the option is exercised or not.

is not recognized. A -

ignored. B -

show the maximum possible dilution of D -

earnings.
Change made to comply with a new FRSC C -
pronouncement

Materiality B -
1 For a given year, beginning and ending total liabilities
were P840,000 and P1,000,000, respectively. At year-
end, owners' equity was P2,600,000 and total assets
were P200,000 larger than at the beginning of the year. If
new capital stock issued exceeded dividends by
P240,000, net income (loss) for the year was apparently

2 On December 31 of the current year, Holly Company's

bookkeeper made an entry debiting Supplies Expense
and crediting Supplies on Hand for P12,600. The Supplies
on Hand account had a P15,300 debit balance on January
1. The December 31 balance sheet showed Supplies on
Hand of P11,400. Only one purchase of supplies was
made during the month, on account. The entry for that
purchase was

3 The following errors were made in preparing a trial

balance: the P13,500 balance of Inventory was omitted;
the P4,500 balance of Prepaid Insurance was listed as a
credit; and the P3,000 balance of Salaries Expense was
listed as Utilities Expense. The debit and credit totals of
the trial balance would differ by

4 Martin Corporation was organized on January 3, 2009.

Martin was authorized to issue 50,000 shares of common
stock with a par value of P10 per share. On January 4,
Martin issued 30,000 shares of common stock at P25 per
share. On July 15, Martin issued an additional 10,000
shares at P20 per share. Martin reported income of
P33,000 during 2009. In addition, Martin declared a
dividend of P0.50 per share on December 31, 2009. The
amount reported on Martin Corporation's December 31,
2009, balance sheet as stockholders' equity was

5 First Company sold merchandise on credit to Second

Company for P10,000 on July 1, with terms of 2/10, net /
30. On July 6, Second returned P2,000 worth of
merchandise claiming the materials were defective. On
July 8, First received a payment from Second and
credited Accounts Receivable for P4,500. On July 24,
Second Company paid the remaining balance on its
account. What was the total cash received from Second
during July?
6 Based on its past collection experience, Ace Company
provides for bad debts at the rate of 2 percent of net
credit sales. On January 1, 2009, the allowance for
doubtful accounts credit balance was P10,000. During
2009, Ace wrote off P18,000 of uncollectible receivables
and recovered P5,000 on accounts written off in prior
years. If net credit sales for 2009 totaled P1,000,000, the
doubtful accounts expense for 2009 should be

7 National Appliance Center sells washing machines that

carry a three-year warranty against manufacturer's
defects. Based on company experience, warranty costs
are estimated at P60 per machine. During the year,
National sold 48,000 washing machines and paid
warranty costs of P340,000. In its income statement for
the year ended December 31, National should report
warranty expense of

8 Selected information from the accounting records of

Ellison Manufacturing Company follows:
Net sales
3,600,000 Cost of goods sold
2,400,000 Inventories at January 1
672,000 Inventories at December 31
576,000 What is the number of days'
sales in average inventories for the year?

9 Assume the following facts for Kurt Company: The month-

end bank statement shows a balance of P40,000;
outstanding checks total P2,000; a deposit of P8,000 is in
transit at month-end; and a check for P400 was
erroneously charged against the account by the bank.
What is the correct cash balance at the end of the
month?

10 The August 31 bank statement of Kelvin Inc. showed a

balance of P113,000. Deducted in arriving at this amount
was a customer's NSF check for P2,400 that had been
returned. Kelvin had received no prior notice concerning
this check. In addition to the bank statement, other
records showed there were deposits in transit totaling
P17,200 and that outstanding checks totaled P10,800.
What is the cash balance per books at August 31 (prior to
adjustments)?
11 Gekko, Inc. reported the following balances (after
adjustment) at the end of: 2010 2009

Total accounts receivable

P105,000 P96,000 Net accounts
receivable P102,000 P94,500 During 2010,
Gekko wrote off customer accounts totaling P3,200 and
collected P800 on accounts written off in previous years.
Gekko's doubtful accounts expense for the year ending
12 December 31, 2010
Jackson Company is the following cash balances at
had
December 31, 2009:
Cash in banks
P375,000 Petty cash funds (all funds were
reimbursed on December 31, 2009)
5,000 Cash in banks includes P125,000 of
compensating balances against short-term borrowing
arrangements at December 31, 2009. The compensating
balances are legally restricted as to withdrawal by
Jackson. In the current asset section of Jackson's
December 31, 2009, balance sheet, what total amount
should be reported as Cash?

13 Hardy Company is a wholesale electronics distributor.

On December 31, 2009, it prepared the following partial
income statement:
Gross sales 600,400
Sales discounts 400
Net sales
600,000 Cost of goods sold:
Beginning inventory 200,000
Net purchases 300,000
Given this information, if Hardy Company's
gross margin is 30 percent of net sales, what is the
correct ending inventory balance?
14 On October 31, a flood at Payne Company's only
warehouse caused severe damage to its entire inventory.
Based on recent history, Payne has a gross profit of 25
percent of net sales. The following information is
available from Payne's records for the ten months ended
October 31:
Inventory, January 1
520,000 Purchases
4,120,000 Purchase returns
60,000 Sales
5,600,000 Sales discounts
400,000 A physical
inventory disclosed usable damaged goods which Payne
estimates can be sold for P70,000. Using the gross profit
method, the estimated cost of goods sold for the ten
months ended October 31 should be

15 The following information is available for Torino Corp. for

its most recent year:
Net sales
3,600,000 Freight-in
90,000 Purchase discounts
50,000 Ending inventory
240,000 The gross margin is
40 percent of net sales. What is the cost of goods
available for sale?

16 Venus Inc. carries Product A in inventory on December 31

at its unit cost of P22.50. Because of a sharp decline in
demand for the product, the selling price is reduced to
P24.00 per unit. Venus' normal profit margin on Product A
is P4.80, disposal costs are P3.00 per unit, and the
replacement cost is P15.90. Under the rule of lower of
cost or net realizable value, Venus' December 31
inventory of Product A should be valued at a unit cost of

17 On July 1, 2009, Riviera Manufacturing Co. issued a five-

year note payable with a face amount of P250,000 and
an interest rate of 10 percent. The terms of the note
require Riviera to make five annual payments of P50,000
plus accrued interest, with the first payment due June 30,
2010. With respect to the note, the current liabilities
section of Riviera's December 31, 2009, balance sheet
should include
18 At December 31, 2009, Reed Corp. owed notes payable
of P1,000,000 with a maturity date of April 30, 2010.
These notes did not arise from transactions in the normal
course of business. On February 1, 2010, Reed issued
P3,000,000 of ten-year bonds with the intention of using
part of the bond proceeds to liquidate the P1,000,000 of
notes payable. Reed's December 31, 2009, financial
statements were issued on March 29, 2010. How much of
the P1,000,000 notes payable should be classified as
current in Reed's balance sheet at December 31, 2009?

19 On January 1, MAX issued ten-year bonds with a face

amount of P1,000,000 and a stated interest rate of 8
percent payable annually each January 1. The bonds
were priced to yield 10 percent. The total issue price
(rounded) of the bonds was

20 On January 1, 2010, Lisbon Corp. issued 2,000 of its 9

percent, P1,000 bonds at 95. Interest is payable
semiannually on July 1 and January 1. The bonds mature
on January 1, 2020. Lisbon paid bond issue costs of
P80,000, which are appropriately recorded as a deferred
charge. Lisbon uses the straight-line method of
amortizing bond discount and bond issue costs. On
Lisbon's December 31, 2010, balance sheet, how much
would be shown as the carrying amount of the bonds
payable?

21 On March 2, 2010, Ross Corporation issued 4,000 shares

of 6 percent cumulative P100 par value preferred stock
for P434,000. Each preferred share carried one
nondetachable stock warrant which entitled the holder to
acquire, at P17, one share of Ross P10 par common
stock. On March 2, 2010, the market price of the
preferred stock (without warrants) was P90 per share and
the market price of the stock warrants was P15 per
warrant. The amount credited to Paid-In Capital in Excess
of Par-Preferred by Ross on the issuance of the stock was
22 On January 2, 2009, Stoner Corporation granted stock
options to key employees for the purchase of 60,000
shares of the company's common stock at P25 per share.
The options are intended to compensate employees for
the next two years. The options are exercisable within a
four-year period beginning January 1, 2011, by grantees
still in the employ of the company. The market price of
Stoner's common stock was P32 per share at the date of
grant. Stoner plans to distribute up to 60,000 shares of
treasury stock when options are exercised. The treasury
stock was acquired by Stoner at a cost of P28 per share
and was recorded under the cost method. Assume that
no stock options were terminated during the year. How
much should Stoner charge to Compensation Expense for
the year ended December 31, 2009?

23 On December 10, Daniel Co. split its stock 5-for-2 when

the market value was P65 per share. Prior to the split,
Daniel had 200,000 shares of P15 par value stock. After
the split, the par value of the stock was

24 In 2009, Wyatt Corporation issued for P110 per share,

15,000 shares of P100 par value convertible preferred
stock. One share of preferred stock may be converted
into three shares of Wyatt's P25 par value common stock
at the option of the preferred shareholder. On December
31, 2010, all of the preferred stock was converted into
common stock. The market value of the common stock at
the conversion date was P40 per share. What amount
should be credited to the common stock account on
December 31, 2010?

25 On October 1, Takei, Inc. exchanged 8,000 shares of its

P25 par value common stock for a parcel of land to be
held for a future plant site. Takei's common stock had a
fair market value of P80 per share on the exchange date.
Takei received P36,000 from the sale of scrap when an
existing building on the site was razed. The land should
be carried at
26 Mozely Company borrowed P400,000 on a 10 percent
note payable to finance a new warehouse Mozely is
constructing for its own use. The only other debt on
Mozely's books is a P600,000, 12 percent mortgage
payable on an office building. At the end of the current
year, average accumulated expenditures on the new
warehouse totaled P475,000. Mozely should capitalize
interest for the current year in the amount of

27 Dewey Company purchased a machine that was installed

and placed in service on January 2, 2009, at a total cost
of P480,000. Residual value was estimated at P80,000.
The machine is being depreciated over ten years by the
double-declining-balance method. For the year 2010,
Dewey should record depreciation expense of

28 Malone Company traded in an old machine with a book

value of P15,000 on a new similar machine. The new
machine, which had a cash price of P75,000, was
purchased for P64,000 cash plus the old machine. Malone
should record the cost of the new machine as

29 Jordan Company exchanged a used autograph-signing

machine with Rodman Company for a similar machine
with less use. Jordan's old machine originally cost
P50,000 and had accumulated depreciation of P40,000,
as well as a market value of P40,000, at the time of the
exchange. Rodman's old machine originally cost P60,000
and at the time of the exchange had a book value of
P30,000 and a market value of P32,000. Rodman gave
Jordan P8,000 cash as part of the exchange. Jordan
should record the cost of the new machine at
30 On January 2, 2008, Reynolds Corporation bought 15
percent of Scorpio Corporation's capital stock for P60,000
and classified it as available-for-sale securities. Scorpio's
net incomes for the years ended December 31, 2008 and
2009, were P20,000 and P100,000, respectively. During
2009, Scorpio declared a dividend of P140,000. No
dividends were declared in 2008. On December 31, 2009,
the fair value of the Scorpio stock owned by Reynolds
had increased to P90,000. How much should Reynolds
show on its 2009 income statement as income from this
investment?

31 On January 1, 2009, Young Co. paid P500,000 for 20,000

shares of Montana Co.'s common stock and classified
these shares as trading securities. Young does not have
the ability to exercise significant influence over Montana.
Montana declared and paid a dividend of P0.50 a share to
its stockholders during 2009. Montana reported net
income of P260,000 for the year ended December 31,
2009. The fair value of Montana Co.'s stock at December
31, 2009, is P27 per share. What is the net asset amount
(which includes both investments and any related market
adjustments) attributable to the investment in Montana
that will be included on Young's balance sheet at
December 31, 2009?

32 Martin Co. purchased the following portfolio of available-

for-sale securities during 2009 and reported the following
balances at December 31, 2009. No sales occurred
during 2009. All declines are considered to be temporary.
Security Cost Market Value at
12/31/09 X 80,000
82,000 Y 140,000
132,000 Z 32,000
28,000 Martin Co. should
report what amount related to the securities transactions
in its 2009 income statement?
33 In March of 2008, Moon Corp. bought 45,000 shares of
Sunshine Corp.'s listed stock for P450,000 and classified
the shares as available-for-sale securities. The market
value of these shares had declined to P300,000 by
December 31, 2008. Moon changed the classification of
these shares to trading securities in June of 2009 when
the market value of this investment in Sunshine's stock
had risen to P345,000. How much should Moon include as
a loss on transfer of securities in its determination of net
income for 2009?

34 In January 2009, Henry Corporation acquired 20 percent

of the outstanding common stock of Connie Company for
P1,120,000. This investment gave Henry the ability to
exercise significant influence over Connie. The book
value of the acquired shares was P840,000. The excess of
cost over book value was attributed to an identifiable
intangible asset that was undervalued on Connie's
balance sheet and that had a remaining useful life of ten
years. For the year ended December 31, 2009, Connie
reported net income of P252,000 and paid cash dividends
of P56,000 on its common stock. What is the proper
carrying value of Henry's investment in Connie at
December 31, 2009?

35 On January 1, 2009, Mets Inc. purchased 30 percent of

the outstanding common stock of Pirates Corporation for
P516,000 cash. Mets is accounting for this investment
using the equity method. On the date of acquisition, the
fair value of Pirates' net assets was P1,240,000. Mets has
determined that the excess of the cost of the investment
over its share of Pirates' net assets is attributable to
goodwill. Pirates' net income for the year ended
December 31, 2009, was P360,000. During 2009, Pirates
declared and paid cash dividends of P40,000. There were
no other transactions between the two companies. On
December 31, 2009, the investment in Pirates should be
recorded as
36 On October 1, Dennis Company purchased P200,000 face
value 12% bonds for 98 plus accrued interest and
brokerage fees and classified them as held-to-maturity
securities. Interest is paid semiannually on January 1 and
July 1. Brokerage fees for this transaction were P700. At
what amount should this acquisition of bonds be
recorded?

37 Kings Repairs acquires equipment under a noncancelable

lease at an annual rental of P45,000, payable in advance
for five years. After five years, there is a bargain
purchase option of P75,000. The appropriate interest rate
is 12 percent. What is the total present value of the lease
and the first year's interest expense?

38 MNO, Inc. leased machinery with a fair value of P250,000

from Lawton Machine Co. on December 31, 2009. The
contract is a six-year noncancelable lease with an implicit
interest rate of 10 percent. The lease requires annual
payments of P50,000 beginning December 31, 2009.
MNO appropriately accounted for the lease as a capital
lease. MNO's incremental borrowing rate is 12 percent.
Assuming the present value of an annuity due of 1 for 6
years at 10 percent is 4.7908 and the present value of an
annuity due of 1 for 6 years at 12 percent is 4.6048, what
is the lease liability that MNO should report on the
balance sheet at December 31, 2009?

39 Baxter Company leased equipment to Fritz Inc. on

January 1, 2009. The lease is for an eight-year period
expiring December 31, 2016. The first of eight equal
annual payments of P900,000 was made on January 1,
2009. Baxter had purchased the equipment on December
29, 2008, for P4,800,000. The lease is appropriately
accounted for as a sales-type lease by Baxter. Assume
that the present value at January 1, 2009, of all rent
payments over the lease term discounted at a 10 percent
interest rate was P5,280,000. What amount of interest
revenue should Baxter record in 2010 (the second year of
the lease period) as a result of the lease?
40 Aerotech Inc., a dealer in machinery and equipment,
leased equipment to Quality Products on July 1, 2010.
The lease is appropriately accounted for as a sale by
Aerotech and as a purchase by Quality. The lease is for a
ten-year period (the useful life of the asset) expiring June
30, 2020. The first of ten equal annual payments of
P250,000 was made on July 1, 2010. Aerotech had
purchased the equipment for P1,337,500 on January 1,
2007, and established a list selling price of P1,687,500 on
the equipment. Assume that the present value at July 1,
2010, of the rent payments over the lease term
discounted at 12 percent (the appropriate interest rate)
was P1,582,500. What is the amount of profit on the sale
and the amount of interest income that Aerotech should
record for the year ended December 31, 2010?

41 The Indy Company had taxable income of P12,000 during

2010. Indy used accelerated depreciation for tax
purposes (P3,400) and straight-line depreciation for
accounting purposes (P2,000). Assuming Indy had no
other temporary differences, what would the company's
pretax accounting income be for 2010?

42 The following information is taken from Blackhawk

Corporation's 2009 financial records:
Pretax accounting income
1,500,000 Excess tax depreciation
(45,000) Taxable income
1,455,000 Assume the taxable
temporary difference was created entirely in 2009 and
will reverse in equal net taxable amounts in each of the
next three years. If tax rates are 40 percent in 2009, 35
percent in 2010, 35 percent in 2011, and 30 percent in
2012, then the total deferred tax liability Blackhawk
should report on its December 31, 2009, balance sheet is
43 The following information was taken from Buccaneer
Corporation's 2010 income statement:
Income before income taxes
1,500,000 Income tax expense:
Current
564,000 Deferred
36,000 600,000 Net income
900,000
Buccaneers' first year of operations was 2010. The
company has a 30 percent tax rate. Management decided
to use accelerated depreciation for tax purpose and the
straight-line method of depreciation for financial
reporting purposes. The amount charged to depreciation
expense in 2010 was P600,000. Assuming no other
differences existed between book income and taxable
income, what amount did Buccaneer deduct for
depreciation on its tax return for 2010?

44 Eden Company had pretax accounting income of P24,000

during 2010. Eden's only temporary difference for 2010
relates to a sale made in 2008 and recognized for
accounting purposes at that time. However, Eden uses
the installment sales method of revenue recognition for
tax purposes. During 2010 Eden collected a receivable
from the 2008 sale which resulted in P6,000 of income
under the installment sales method. Eden's taxable
income for 2010 would be

45 Bright, Inc. has an incentive compensation plan under

which the sales manager receives a bonus equal to 10
percent of the company's income after deductions for
bonus and income taxes. Income before bonus and
income taxes is P400,000. The effective income tax rate
is 30 percent. How much is the bonus (rounded to the
nearest peso)?

46 On January 1, 2010, Brother Co. estimated a projected

benefit of P440,000 based on a settlement rate of 12
percent. Pension benefits paid to retirees totaled
P60,000. Service costs for 2010 amounted to P148,000.
The fair value of the plan assets were P350,000 and
P400,000 on December 31, 2009, and December 31,
2010, respectively. The projected benefit obligation at
December 31, 2010, was
47 The following information relates to the defined benefit
pension plan of the McDonald Company for the year
ending December 31, 2010:
Projected benefit obligation, January 1
4,600,000 Projected benefit obligation, December 31
4,729,000 Fair value of plan assets, January 1
5,035,000 Fair value of plan assets, December 31
5,565,000 Expected return on plan assets
450,000 Amortization of deferred gain
32,500 Employer contributions
425,000 Benefits paid to
retirees 390,000
Settlement rate
10% The net periodic pension cost reported in the
income statement for 2010 would be

48 On July 1, 2010, Cahoon Company sold some limited

edition art prints to Sitake Company for ¥47,850,000 to
be paid on September 30 of that year. The current
exchange rate on July 1, 2010, was ¥110=$1, so the total
payment at the current exchange rate would be equal to
$435,000. Cahoon entered into a forward contract with a
large bank to guarantee the number of dollars to be
received. According to the terms of the contract, if
¥47,850,000 is worth less than $435,000, the bank will
pay Cahoon the difference in cash. Likewise, if
¥47,850,000 is worth more than $435,000, Cahoon must
pay the bank the difference in cash. Assuming the
exchange rate on September 30 is ¥105=$1, what
amount will Cahoon pay to, or receive from, the bank
(rounded to the nearest dollar)?
49 On January 1, 2010, Cougar Company received a two-
year P500,000 loan. The loan calls for payments to be
made at the end of each year based on the prevailing
market rate at January 1 of each year. The interest rate
at January 1, 2010, was 10 percent. Aggie company also
has a two-year P500,000 loan, but Aggie's loan carries a
fixed interest rate of 10 percent. Cougar Company does
not want to bear the risk that interest rates may increase
in year two of the loan. Aggie Company believes that
rates may decrease and they would prefer to have
variable debt. So the two companies enter into an
interest rate swap agreement whereby Aggie agrees to
make Cougar's interest payment in 2011 and Cougar
likewise agrees to make Aggie's interest payment in
2011. The two companies agree to make settlement
payments, for the difference only, on December 31,
2011. If the interest rate on January 1, 2011 is 8 percent,
what will be Cougar's settlement payment to/from Aggie?

50 On January 2, 2010, Worley Co. issued at par P500,000 of

4 percent bonds convertible, in total, into 5,000 shares of
Worley's common stock. No bonds were converted during
2010. Throughout 2010 Worley had 5,000 shares of
common stock outstanding. Worley's 2010 net income
was P50,000. Worley's income tax rate is 40 percent. No
potentially dilutive securities other than the convertible
bonds were outstanding during 2010. Worley's diluted
earnings per share for 2010 would be
(P280,000).

Debit Supplies on Hand,P8,700 and credit

Cash, P8,700.

P13,500

P400,000

P4,410
P17,000

P680,000

102.2

P33,600

P121,800
P1,500

P380,000

P80,000
P680,000

P1,680,000

P15.90

P12,500
P0

P1,000,000

P2,110,000

P0
P420,000

3.00.

P1,125,000

P200,000
P40,000

P64,000

P64,000

P8,000
P3,150

P530,000

P0
P0

P1,080800

P396,000
P196,000

P224,234 and P21,508

P189,540

P490,000
P245,000 and P94,950

P1,400

P13,500
P480,000

P6,000

P40,000

P528,000
P11,500

P18,913 payment
P5,000 payment

P5.80.
(P200,000).

Debit Supplies Expense, P8,700 and credit

Accounts Payable, P8,700.

P18,000

P550,000

P4,500
P20,000

P960,000

94.9

P34,400

P119,400
P2,400

P375,000

P120,000
P3,830,000

P1,920,000

P16.20

P50,000
P100,000

P980,000

P2,090,000

P8,000
P210,000

P6.00

P1,500,000

P236,000
P47,500

P76,800

P71,000

P10,000
P15,000

P540,000

P2,000 unrealized loss

P45,000

P1,092,000

P468,000
P196,700

224,234 and P26,908

P200,000

P480,000
P245,000 and P79,950

P6,600

P15,000
P570,000

P18,000

P30,108

P580,800
P24,000

P18,913 receipt
P5,000 receipt

P6.20.
P40000

Debit Supplies on Hand, P8,700 and credit

Accounts Payable, P8,700.

P21,000

P950,000

P7,910
P23,000

P220,0000

87.6

P45,600

P117,000
P3,000

P255,000

P180,000
P3,900,000

P2,400,000

P21.00

P62,500
P900,000

P920,000

P1,982,000

P34,000
P180,000

P15.00

P1,650,000

P604,000
P49,000

P80,000

P75,000

P16,000
P21,000

P569,000

P10,000 unrealized loss

P105,000

P1,131,200

P612,000
P202,000

P204,771 and P21,508

P230,240

P438,000
P350,000 and P79,950

P13,400

P15,750
P600,000

P24,000

P28,000

P630,800
P36,500

P20,714 payment
P10,000 payment

P7.00.
P280000 B -

Debit Supplies on Hand, P16,500 and credit C -

Accounts Payable, P16,500.

P22,500 D -

P963,000 D -

P8,000 C -
P35,000 B -

P288,0000 D -

68.1 B -

P46,400 D -

P115,400 A -
P3,900 D -

P250,000 D -

P500,000 A -
P4,200,000 C -

P2,440,000 C -

P22.50 C -

P75,000 C -
P1,000,000 D -

P880,000 D -

P1,910,000 D -

P62,000 C -
P180,000 B -

P26.00 B -

P1,800,000 A -

P640,000 C -
P52,250 C -

P96,000 B -

P79,000 C -

P32,000 A -
P51,000 C -

P579,000 B -

P12,000 unrealized loss A -

P150,000 C -

P1,181,600 C -

P624,000 C -
P202,700 B -

P204,771 and P19,173 A -

P239,540 A -

P391,800 D -
P350,000 and P94,950 B -

P17,400 C -

P18,000 B -
P720,000 D -

P30,000 D -

P26,168 D -

P640,800 B -
P59,000 C -

P20,714 receipt C -
P10,000 receipt C -

P11.60. B -
 1 Managerial accounting

Which one of the following managerial accounting

approaches attempts to allocate manufacturing
2 overhead in a more meaningful fashion?
Why is unique about a just-in-time inventory
3 system?

4 Managerial accounting information

An activity that has a direct cause-effect

5 relationship with the resources consumed is a(n)

Which would be an appropriate cost driver for the

6 ordering and receiving activity cost pool?

H55 Company sells two products, beer and wine.

Beer has a 10 percent profit margin and wine has a
12 percent profit margin. Beer has a 27 percent
contribution margin and wine has a 25 percent
contribution margin. If other factors are equal,
7 which product should H55 push to customers?

Ross Company incurred an increase in its level of

activity. What are the effects of this increase on unit
8 costs for variable and fixed costs?

Which concept answers the following question: ‘If

budgeted revenues are above breakeven and
decline, how far can they fall before the breakeven
9 point is reached?’

Wardley Corporation sells its product for P40. The

variable costs are P18 per unit. Fixed costs are
P16,000. The company is considering the purchase
of an automated machine that will result in a $2
reduction in unit variable costs and an increase of
P5,000 in fixed costs. Which of the following is true
10 about the break-even point in units?
 Which of the following is a major accounting
contribution to the managerial decision-making
11 process in evaluating possible courses of action?

A factory is operating at less than 100% capacity.

Potential additional business will not use up the
remainder of the plant capacity. Given the following
list of costs, which one should be ignored in a
12 decision to produce additional units of product?

Diggs, Inc. has excess capacity. Under what

situations should the company accept a special
13 order for less than the current selling price?
14 A company decided to replace an old machine with a new machine. Which of the following is considered a rel

Market Makeup produces face cream. Each bottle

of face cream costs P100 to produce and can be
sold for P130. The bottles can be sold as is, or
processed further into sunscreen at a cost of P140
each. Market Makeup could sell the sunscreen
15 bottles for P230 each.

16 Variable costing

Net income under absorption costing is higher than

17 net income under variable costing when:

18 Which of the following statements is not true?

19 Cost structure refers to the relative proportion of

In a sales mix situation, at any level of units sold,

20 net income will be higher if

21 Prices are set by the competitive market when

The maximum transfer price from the buying
22 division's standpoint is the
 Assuming the selling division has available
capacity, a negotiated transfer price should be
23 within the range of

24 Variable costs of units sold internally will always be

The transfer price approach that conceptually

25 should work the best is the
Which one of the following is not a benefit of
26 budgeting?

Which one of the following is one of the main

purposes of preparing a cash receipts and
27 disbursements budget?

Which one of the following represents the correct

order in which the budget documents listed for a
28 manufacturing company would be prepared?

Skate Rink Company revised its sales budget to

show a 15% increase in sales. As a result of this
29 change, which other budgets would change?

30 Why are budgets useful in the planning process?

What assumption about the behavior of total costs

31 occurs within the relevant range of activity?

Ed is the manager of the San Diego location of

Books Galore. Which one of the following would
32 most likely be an uncontrollable cost for Ed?

Which one of the following statements often inhibits

managers who are evaluated in terms of ROI from
33 growing their investment center?
 Cruise Division of Harrah’s Company’s operating
results include: controllable margin, $200,000;
sales $2,200,000; and operating assets, $800,000.
The Cruise Division’s ROI is 25%. Management is
considering a project with sales of $100,000,
variable expenses of $60,000, fixed costs of
$40,000; and an asset investment of $150,000.
34 Should management accept this new project?
Which responsibility centers generate both
35 revenues and costs?

The difference between a budget and a standard is

36 that

If the standard hours allowed are less than the

37 standard hours at normal capacity,

38 The balanced scorecard approach

The investigation of a materials quantity variance

39 usually begins in the
An unfavorable labor quantity variance may be
40 caused by

41 Horizontal analysis involves the study of:

Which situation below might indicate a company

42 has a low quality of earning?

Sweney Company had P250,000 of current assets

and P90,000 of current liabilities before borrowing
P60,000 from the bank with a 3-month note
payable. What effect did the borrowing transaction
43 have on Sweney Company's current ratio?

44 A successful grocery store would probably have

45 A high receivables turnover ratio indicates

Hammock Company manufactures two models of

its hammock, the Superior and the Deluxe. The
Superior model requires 10,000 direct labor hours
and the Superior requires 40,000 direct labor hours.
The company produces 4,000 units of the Superior
model and 1,000 units of the Deluxe model each
year. The company produces the Superior model in
batch sizes of 200, while it produces the Deluxe
model in batch sizes of 100. The company expects
to incur P120,000 of total setup costs this year.
How much of the setup costs are allocated to the
46 Superior model using ABC costing?

Jaime Inc. manufactures 2 products, sweaters and

jackets. The company has estimated its overhead
in the order-processing department to be
P180,000. The company produces 50,000
sweaters and 80,000 jackets each year. Sweater
production requires 25,000 machine hours, jacket
production requires 50,000 machine hours. The
company places raw materials orders 10 times per
month, 2 times for raw materials for sweaters and
the remainder for raw materials for jackets. How
much of the order processing overhead should be
allocated to jackets?

Hess, Inc. sells a single product with a contribution

margin of P12 per unit and fixed costs of P74,400
and sales for the current year of P100,000. How
47 much is Hess’s break even point?
The following information is available for Chap
48 Company:

Sales 350000
Cost of goods sold 120000
Total fixed expenses 60000
Total variable expenses 100000
 Which amount would you find on Chap’s CVP
income statement?

Disney’s variable costs are 30% of sales. The

company is contemplating an advertising campaign
that will cost P22,000. If sales are expected to
increaseP40,000, by how much will the company's
49 net income increase?

The cost to produce Part A was P10 per unit in

2009. During 2010, it has increased to P11 per unit.
In 2010, Supplier Company has offered to supply
Part A for P9 per unit. For the make-or-buy
50 decision,

Diaz Company’s contribution margin is P4 per unit

for Product A andP5 for Product B. Product A
requires 2 machine hours and Product B requires 4
machine hours. How much is the contribution
margin per unit of limited resource for each
51 product?

Narst Company has old inventory on hand that cost

P12,000. Its scrap value is P16,000. The inventory
could be sold for P40,000 if manufactured further at
an additional cost of P12,000. What should Narst
52 do?

Corn Crunchers has three product lines. It’s only

unprofitable line is Corn Nuts, the results of which
53 appear below for 2009:
Sales P350,000
Variable expenses (230,000)
Fixed expenses (150,000)
Net loss (P 30,000)

If this product line is eliminated, 30% of the fixed

expenses can be eliminated. How much are the
relevant costs in the decision to eliminate this
product line?
 Harry’s Fish House can produce and sell only one
of the following two products: (1) Fried catfish,
which requires 2 fryer hours and has a contibution
margin of P10 per unit; and (2) fried grouper, which
requires 5 fryer hours and has a contribution
margin of P30 per unit. The company has fryer
capacity of 5,000 hours. How much will contribution
margin be if it produces only the most profitable
54 product?

It costs Fortune Company P120 of variable and

P50 of fixed costs to produce one bathroom scale
which normally sells for P350. A foreign wholesaler
offers to purchase 1,000 scales at P150 each.
Fortune would incur special shipping costs of P10
per scale if the order were accepted. Fortune has
sufficient unused capacity to produce the 1,000
scales. If the special order is accepted, what will be
55 the effect on net income?

Expected sales for next year for the BradLey

Division is 120,000 units. Daniel Leynes, the
manager of the Bradley Division, is under pressure
to improve the performance of the Division. As he
plans for next year, he has to decide whether to
produce 120,000 units or 140,000 units. The Brady
Division will have higher net income, if Drew Carey
56 decides to

Ester Company sells two types of products. The

sales mix is 30% (Product A) and 70% (Product B).
Product A has variable costs per unit of P20 and a
selling price of P40. Product B has variable costs
per unit of P25 and a selling price of P55. The
weighted-average unit contribution margin for Ester
57 is
 Green Company sells its product for P11,000 per
unit. Variable costs per unit are: manufacturing,
P6,000; and selling and administrative, P125. Fixed
costs are: P30,000 manufacturing overhead, and
P40,000 selling and administrative. There was no
beginning inventory at 1/1/07. Production was 20
units per year in 2007 – 2009. Sales was 20 units in
2007, 16 units in 2008, and 24 units in 2009. For
58 the three years 2007-2009,

Manuel Company’s degree of operating leverage is

2.0. Techno Corporation’s degree of operating
leverage is 6.0. Techno’s earnings would go up (or
down) by ________ as much as Manuel’s with an
59 equal increase (or decrease) in sales.

Golden Company has sales of P500,000, variable

costs of P425,000, and fixed costs of P25,000.
New World Company has sales of P500,000,
variable costs of P200,000, and fixed costs of
P250,000. Old American’s contribution margin ratio
60 is:
Bryson Company has just developed a new
product. The following data is available for this
61 product:
Desired ROI per unit P 36
Fixed cost per unit 60
Variable cost per unit 90
Total cost per unit P150

The target selling price for this product is

 Management of the Catering Company would like
the Food Division to transfer 10,000 cans of its final
product to the Restaurant Division for P80. The
Food Division sells the product to customers for
P140 per unit. The Food Division’s variable cost
per unit is P60 and its fixed cost per unit is P20.
The Food Division has 10,000 units available
capacity. What is the minimum transfer price the
62 Food Division should accept?

Partridge Co. has produced a product with a total

unit cost of P60 and a desired ROI per unit of P20.
If Partridge Co.’s target selling price is P80, what is
63 its percentage markup on cost?

Hen Company has developed a new product, egg

crates that prevent breakage. The cost per crate is
P50 and the company expects to sell 1,000 crates
per year. Hen Company has invested P1,000,000
in equipment to produce the crates and desires a
10% return on investment. What is Hen
64 Company’s selling price for one egg crate?

During December, the capital budget indicates a

P280,000 purchase of equipment. The ending
November cash balance is budgeted to be
P40,000. Cash receipts are P840,000, and cash
disbursements are P610,000 during December.
The company wants to maintain a minimum cash
balance of P20,000. What is the minimum cash
loan that must be planned to be borrowed from the
65 Bank during December?

Items from Sap Company’s budget for March in

which 2,100 units were produced and sold appear
below:
Direct materials P12,000
Indirect materials - variable 2,000
 Supervisor salaries 10,000
Depreciation on factory equipment 8,000
Direct labor 7,000
Property taxes on factory 3,000
Total P42,000

At 2,200 units, how much are budgeted variable

66 manufacturing costs?

Lowe Ridge has budgeted its activity for December

according to the following information:
1. Sales at P400,000, all for cash.

2. Budgeted depreciation for December is P10,000.

3. The cash balance at December 1 was P10,000.

4. Selling and administrative expenses are

budgeted at P40,000 for December and are paid
for in cash.

5. The planned merchandise inventory on

December 31 and December 1 is P12,000.

6. The invoice cost for merchandise purchases

represents 75% of the sales price. All purchases
are paid in cash.
How much are the budgeted cash disbursements
67 for December?

Secret Prizes, Inc. is planning to sell 200 buckets

and produce 190 buckets during March. Each
bucket requires 500 grams of plastic and one-half
hour of direct labor. Plastic costs P10 per 500
grams and employees of the company are paid
P15.00 per hour. Manufacturing overhead is
applied at a rate of 110% of direct labor costs.
Secret Prizes has 300 kilos of plastic in beginning
inventory and wants to have 200 kilos in ending
inventory. How much is the total amount of
68 budgeted direct labor for March?
 Farley Company reported the following budgeted
sales for 2010: September, P240,000;
October, P310,000; November, P290,000;
December, P360,000.
•         All sales are on credit.
•         Customer amounts on account are collected
50% in the month of sale and 50% in the following
month.
How much is the November 30, 2010 budgeted
69 Accounts Receivable?
The following information is available for Aggie
Auto Sales:

Average operating assets P800,000

Controllable margin 80,000
Contribution margin 200,000
Minimum rate of return 8%

70 How much is Aggie Auto’s residual income?

The standard number of hours that should have

been worked for the output attained is 8,000 direct
labor hours and the actual number of direct labor
hours worked was 8,400. If the direct labor price
variance was P8,400 unfavorable, and the standard
rate of pay was P18 per direct labor hour, what was
71 the actual rate of pay for direct labor?

Blue Fin Co. produces a product requiring 10

pounds of material at P15.00 per pound. Blue Fin
produced 1,000 products during 2010 resulting in a
P30,000 unfavorable materials quantity variance.
How much direct material did Blue Fin use during
72 2010?

Bridgeware Company has a materials price

standard of P6.00 per pound. Two thousand
pounds of materials were purchased at P6.60 a
pound. The actual quantity of materials used was
2,000 pounds, although the standard quantity
73 allowed for the output was 1,800 pounds.
74 Bridgeware Company's materials price variance is

The total variance is $10,000. The total materials

variance is $4,000. The total labor variance is twice
the total overhead variance. What is the total
75 overhead variance?
is concerned with costing products.

Theory of constraints

It focuses on performance measurement.

pertains to the entity as a whole and is highly

aggregated.

cost driver.

Machine setups

Beer

Decrease in unit variable cost and a constant unit

fixed cost

Contribution margin

It will remain unchanged.

Determine who is responsible for the decision.

Variable selling expenses

Never
The book value of the old equipment

Face cream must be further processed because its

profit is P90 each.

is used for external reporting purposes.

units produced exceed units sold.

Operating leverage refers to the extent to which a

company’s net income reacts to a given change in
sales.

selling expenses versus administrative expenses.

more higher contribution margin units are sold than

lower contribution margin units.

the product is specially made for a customer.

total cost + opportunity cost.

fixed cost per unit and the external purchase price.

lower than the variable costs of units sold

externally.

cost-based approach.

It facilitates the coordination of activities.

To find investment opportunities for anticipated

surpluses

Production budget, marketing budget, direct

materials budget, indirect labor budget

All of its other budgets

They provide management with information about

the company’s past performance.

Linear and upward sloping

Workers’ compensation insurance expense for his

cashiers

Taking on new investment projects can decrease

ROI.
No, since ROI will be lowered

Investment and profit centers

a budget expresses what costs were, while a

standard expresses what costs should be.

the overhead volume variance will be unfavorable.

uses only financial measures to evaluate

performance.

production department.

paying workers higher wages than expected.

percentage changes in the balances shown in

comparative financial statements.

Revenue is recognized when earned.

The ratio remained unchanged.

a low inventory turnover.

a.    customers are making payments quickly.

P80,000

P90,000

4,600 units
Contribution margin of P250,000

P18,000

incremental revenues are P2 per unit.

P4.00 and P5.00 for A and B, respectively

Sell the inventory for P16,000 scrap value

P45,000
P100,000

P20,000 increase

produce 140,000 units if income is measured under

absorption costing.

P23.00.
absorption costing income exceeds variable costing
income by $6,000

one-third

15%

P186
P20

125%

P110

P30,000
P22,000

P230,000

P1,500
P300,000

P136000

P17.00 per direct labor hour

120,000 pounds
P120 U.

P1,000
is governed by generally accepted accounting
principles.

Just-in-time inventory

It reduces inventory quantities.

must be prepared according to generally accepted

accounting principles.

overhead rate.

Purchase orders

Wine

Both variable and fixed costs per unit increase

Relevant range of operations

It will decrease.
Prepare internal reports that review the actual
impact of a decision made.

Fixed factory overhead

When additional fixed costs must be incurred to

accommodate the order
Depreciation expense on the old equipment

Face cream must not be further processed because

costs increase more than revenue.

is required under GAAP.

units produced equal units sold.

Companies that have higher fixed costs relative to

variable costs have higher operating leverage.
selling and administrative expenses versus cost of
goods sold.

more lower contribution margin units are sold than

higher contribution margin units
there are no other producers capable of
manufacturing a similar item.

variable cost + opportunity cost.

total cost per unit and the external purchase price.

higher than the variable costs of units sold

externally.

market-based approach.
It provides definite objectives for evaluating
performance.

To reconcile cash on hand

Sales budget, cash budget, direct materials budget,

direct labor budget

Only its selling and administrative expenses budget

They help communicate goals and provide a basis

for evaluation.

Linear and downward sloping

Installation of a corporate-wide satellite dish system

for book signings by selected authors

Taking on new investment projects will improve the

division’s performance.
Yes, since ROI will increase

Profit and cost centers

a budget expresses management's plans, while a

standard reflects what actually happened.

variable overhead costs will be underapplied.

uses rather vague, open statements when setting

objectives in order to allow managers and
employees flexibility.

purchasing department.

paying workers a bonus at year end.

the percentage amount of various financial

statement amounts compared to a total amount on
the financial statement.

Repair costs are capitalized and then depreciated.

The change in the current ratio cannot be

determined.

a high inventory turnover.

b.     a large portion of the company’s sales are on
credit.

P60,000

P120,000

$25,600
Contribution margin of P190,000

P28,000

incremental costs are P1 per unit.

P2.00 and P1.25 for A and B, respectively

Dispose of the inventory to avoid any further decline

in value

whi

P380,000
P25,000

P20,000 decrease

produce 140,000 units if income is measured under

variable costing.

P25.00.
absorption costing income equals variable costing
income.

2 times

60%

P150
P60

100%

P150

P10,000
P43,000

P340,000

P3,000
P180,000

P720000

P15.00 per direct labor hour

100,000 pounds
P1,200 U.

P2,000
pertains to the entity as a whole and is highly
aggregated.

Activity-based costing

It is a more accurate method of allocating costs.

pertains to subunits of the entity and may be very

detailed.

cost pool.

Machine hours

Selling either results in the same additional income

for the company

Increase in unit fixed cost and a constant unit

variable cost

Operating leverage

It will increase.
Calculate how much should be invested for each
potential project.

Direct labor

When the company thinks it can use cheaper

materials without the customer’s knowledge
The loss on the disposal of the old equipment

Face cream must not be further processed

because it decreases profit by P10 each.
treats fixed manufacturing overhead as a period
cost.

units produced are less than units sold.

When a company’s sales revenue is increasing,

high operating leverage is a good thing because it
means that profits will increase rapidly.

gross margin versus sales.

more fixed expenses are incurred.

a company can effectively differentiate its product
from others.

external purchase price.

variable cost per unit and the external purchase
price.

the same as the variable costs of units sold

externally.

negotiated price approach.

It provides assurance that the company will achieve
its objectives.

To determine production needed

Selling and administrative expense budget,

budgeted income statement, cash budget,
budgeted balance sheet

Its marketing budget only

They guarantee the company will be profitable if it

meets its objectives.

Curvilinear and upward sloping

Costs of printing signs for local promotions

Taking on new investment projects will always

increase profits.
Yes, since additional sales always mean more
customers.

Cost and investment centers

a budget expresses a total amount while a standard

expresses a unit amount.

the overhead controllable variance will be

favorable.

normally sets the financial objectives first, and then

sets the objectives in the other perspectives to
accomplish the financial objectives.

sales department.

worker fatigue or carelessness.

the change in key financial statement ratios over a

certain time frame or horizon.

The financial statements are prepared in

accordance with generally accepted accounting
principles.

The ratio decreased.

zero profit margin.

c.     many customers are not paying their
receivables.

P24,000

P110,770

6,200 units
Gross profit of P230,000

P12,000

net relevant costs are P1 per unit.

P1.25 and P2.00 for A and B, respectively

Hold the inventory at its P12,000 cost

P335,000
P30,000

P30,000 decrease

produce 120,000 units if income is measured under

absorption costing.

P27.00.
variable costing income exceeds absorption costing
income by $6,000.

3 times

85%

P126
P80

50%

P100

P50,000
P21,000

P350,000

P1,425
P155,000

P16000

P19.00 per direct labor hour

200,000 pounds
P1,080 U.

P3,000
 D
places emphasis on special-purpose information. -

Total-quality management C -

It reduces defects in finished products. -

is prepared only once a year. C -

product activity. A -

Inspections B -

It should sell an equal quantity of both. A -

A constant unit variable cost and decrease in unit

fixed cost D -

Margin of safety D -

It cannot be determined from the information provided.

C -
Select possible actions that management should
consider. B -

Contribution margin of additional units B -

When incremental revenues exceed incremental

costs D -
The current disposal price of the old equipment D -

Face cream must be further processed because it

increases profit by P30 each. B -

is also known as full costing. C -

regardless of the relationship between units

produced and units sold. A -

When a company’s sales revenue is decreasing,

high operating leverage is a good thing because it
means that profits will decrease at a slower pace
than revenues decrease. D -

fixed costs versus variable costs. D -

weighted-average unit contribution margin

decreases. A -
a product is not easily distinguished from competing
products. D -

external purchase price + opportunity cost. C -

variable cost per unit and the opportunity cost. C -

Variable costs of units sold internally may be either

higher or lower than for units sold externally. D -

time and material pricing approach. C -

It requires all levels of management to plan ahead
on a recurring basis. C -

To determine how many units need to be sold A -

Sales budget, cash budget, marketing budget,

direct materials budget C -

Only its production budget A -

They enable the budget committee to earn their

paycheck. B -

Horizontal A -

Color selection of logo merchandise B -

Taking on new investment projects which improve

controllable margin will always improve ROI. A -
No, since a loss will be incurred. A -

Only profit centers A -

standards are excluded from the cost accounting

system, whereas budgets are generally
incorporated into the cost accounting system. C -

variable overhead costs will be overapplied. A -

evaluates performance using about 10 different

perspectives in order to effectively incorporate all
areas of the organization. C -

controller's department. A -

higher pay rates mandated by union contracts. C -

the interrelationship between the income statement

and the balance sheet. A -

The same accounting principles are used each

year. B -

The ratio increased. C -

low volume. B -
d.    the company’s sales have increased. A -

P100,000 A -

P144,000 D -

2,133 units C -
Gross profit of P190,000 A -

P6,000 D -

differential costs are P2 per unit. D -

P2.50 and P1.00 for A and B, respectively B -

Manufacture further and sell it forP40,000 D -

P275,000 D -
P150,000 C -

P150,000 increase A -

produce 120,000 units if income is measured under

variable costing. A -

P50.50. C -
absorption costing income may be greater than,
equal to, or less than variable costing income
depending on the situation. B -

6 times C -

95% A -

P96 A -
P140 B -

33.30% D -

P250 B -

P0 A -
P19,905 A -

P328,000 B -

P2,850 C -
 P145,000 D -

P64000 C -

P18.00 per direct labor hour C -

145,000 pounds A -
P1,200 F. B -

P4,000 B -
1 The President of the Philippines and the Prime Minister of
Japan entered into an executive agreement in respect of a
loan facility to the Philippines from Japan whereby it was
stipulated that interest on loans granted by private
Japanese financial institutions in the Philippines shall not
be subject to Philippine income taxes. What basic
characteristic of taxation has been violated by this
agreement?

2 Statement I. The power of taxation is inherent in

sovereignty being essential to the existence of every
government. Hence, even if not mentioned in the
Constitution, the state can still exercise the power.
Statement II. The power of taxation is
essentially a legislative function. Even in the absence of
any constitutional provision, taxation power falls to
Congress as part of the general power of lawmaking.

3 Those restrictions on the exercise of the power of taxation

that are found in the constitution or implied from its
provisions

4 Statement I. No person shall be imprisoned for debt or

nonpayment of poll tax.
Statement II. The power of taxation can be
delegated to the President of the Philippines.
Statement III. The power to tax
may include the power to destroy.

5 Remy Martin, single, supports the following:

I.Johnny Walker, illegitimate son, 16 years old,
studying in the Universidad de Jeres, Cadiz, Spain living
with Remy Martin's diplomat brother in Andalucia, Spain.
II. Torres, father, living with him. Remy
Martin is giving 60% of the entire support needed; the
other 40% is being furnished by his sister, Chivas Regal.
Remy Martin can claim
a total exemption of

6 Taxpayers are husband and wife. The gross compensation

income of the wife is P260,000 while the gross business
income of the husband is P200,000. They have six (6)
qualified dependent children but within the year one child
died. Their total exemptions is
7 Statement 1: Health and/or hospitalization insurance
premiums paid by an individual is deductible only if the
taxpayer is a pure compensation income earner.
Statement 2: A taxpayer who has paid monthly
health insurance premiums of P400 for six months in a
year can claim a total deductible amount of P2,400.

8 Byron leased a land to Lyndon for a period of 11 years

starting Jan. 1, 2009 at an annual rental of P12,000.
Observing the provisions of the contract, Lyndon
constructed a building which shall become the property of
Byron at the expiration of the lease. The construction was
completed on January 1, 2009 at a cost of P1,000,000 with
an estimated useful life of 20 years. It is also stipulated in
the contract that the lessee will pay the P1,500 annual
real property tax on the land. How much income is to be
reported by Byron in 2009 under the outright method?

9 On January 1, 2007, Batibot leased a lot to Luningning

with a building erected thereon for a period of 10 years.
The lease contract provides that Luningning will pay the
following:
a. Monthly rental of P10,000.
b. Fire insurance premium of P15,000 per
year. c.
Real property tax of P 5,000 a year.
The lessee will construct a concrete fence surrounding
the lot at a cost of P1,200,000 with a useful life of 20
years which shall belong to the lessor at the expiration of
the lease. The fencing was finished on June 30, 2009.
In 2009,
Batibot shall report as income from lease (spread-out
method) an amount of

10 Proceeds of insurance taken by a corporation on the life of

an executive to indemnify it against loss in case of his
death is

11 In 2010, Solano University, a proprietary educational

institution registered with the Securities and. Exchange
Commission (SEC)and Commission on Higher Education
(CHED), spent P20,000,000 for the construction of a new
building. For income tax purposes, this amount maybe:
12 The Bataan School of Business and Arts (BSBA), is a
private educational institution recognized by the
government. The following are the financial data for its
fiscal year ending June 30, 2010:
Tuition fees
P12,800,000 Miscellaneous fees
1,800,000
Interest on bank deposits 12,300
Rent income of school facilities
to outsiders
350,000
Salary and bonuses,
all personnel
7,500,000 Other operating expenses
3,500,000 Repayment of loan
400,000
Quarterly (three quarters)
income tax paid
48,000 A
building was constructed on April 2, 2010 at a cost of
P2,000,000 with a depreciable life of 50 years.
Assuming the cost of
construction is treated as an expense, the income tax
payable by the school for the year ended June 30, 2010 is

13 Dividends from a domestic corporation and/or share in the

net income of a taxable partnership received by a citizen
during the year 2009 is subject to a final tax of

14 The TY Corporation is an international carrier doing

business in the Philippines. Its taxable base for income tax
purposes is

15 A resident international carrier has the following data for

the current year: Gross income of P700,000 and expenses
of P200,000 from the Philippines; Gross income of
P500,000 and expenses of P100,000 from Hongkong. How
much is the tax payable of the corporation?

16 On February 5, 2009, Zuniega Corporation declares 20%

stock dividend and issued shares of stocks amounting to
P100,000. On March 20, 2009, the corporation redeemed
the stock dividend by virtue of which the stockholders
surrendered their stock certificates in return for the cash
paid to them by Zuniega Corporation in the amount of
P100,000.
17 Francis Corporation had the following items of income
and expenses during the year:
Gross receipts
P1,000,000 Cost of services
850,000 Dividends from a domestic
company
35,000 General and administrative
expenses
120,000 The income tax due onFrancis
Corporation is

18 The share of a partner in the profits of a general

professional partnership is regarded as received by him
and thus taxable although not yet distributed. This
principle is known as

19 Bamba and Lumba, a business partnership, had the

following data of income and expenses:
Gross income
P 750,000 Expenses
200,000 Dividend from a
domestic
corporation
75,000 Interest on bank deposit
(gross of tax)
10,000 Partners Bamba and Lumba share
profits and losses in the ratio of 55% and 45%,
respectively. The income tax payable by Bamba and
Lumba is

20 Bing & Bong, CPAs, a partnership of Certified Public

Accountants, had a gross income of P220,000 and
expenses of P85,000 during the year: Additional data
follows:
Bing Bong

Share in profit and loss

ratio 75% 25% Income from other
business P125,000 P325,000 Expenses of
other businesses 80,000 190,000 Amount
withdrawn from partnership 30,000 12,500
Filing status Married
Unmarried Dependent children None
2 The income tax payable by the
21 An heir who inherits personal property by will is called
partnership is
22 Lambanog died on January 1, 2009. He left a gross estate
with a cost of P4,000,000 but valued at P3,500,000 under
an administrator. During the year, the gross income
derived from the business of the estate was P400,000
while the related expenses amounted to P150,000.
Beneficiaries Miguel and Martin were given P100,000
each. The income tax due on the estate of Lambanog is -

23 An arrangement under which title to property is passed to

another for investment, with the income and ultimately
the principal to be distributed in accordance with the
direction of the creator is

24 Which of the following is not subject to tax?

25 Morales qualified as head of a household for 2008 tax
purposes. Morales' 2009 taxable income was P200,000
exclusive of capital gains and losses. Morales had a net
long-term loss of P8,000 in 2009. What amount of this
capital loss can Morales offset against 2009 ordinary
income?

26 A transaction in which the speculator sells securities

which he does not own (he merely borrows the stock
certificate through or from om his stock broker) in
anticipation of a decline in its price, and within a
reasonably short period of time buys or covers the stock
to complete the transaction

27 On August 15, 2009, Cruzette sold a 500 square meter

residential house for P3,000,000. The house was acquired
in 2000 for P2,000,000. On the date of sale, the fair
market value of the house as shown in the real property
declaration was P2,500,000 and the assessed value
amounted to P2,200,000. The zonal value was P7,000 per
square meter. The capital gains tax is

28 All of the following, except one, are not deductible from

gross income

29 Generally, sales of real property are subject to tax. Which

of the following sales of land is not allowed by the law to
be subjected to tax?

30 One is not a deductible tax

31 Which of the following is entitled to tax credit for taxes
paid to foreign country?
32 Matt and Jeff are business competitors. Matt purchased a
land beside the business premises of Jeff with the
intention of erecting a new 4-storey building. The land
which was valued at P1,000,000 had an almost
dilapidated building thereon assessed at P150,000. He
spent P40,000 for its demolition and sold its scrap for
P25,000. The construction of the new building cost him
P10,000,000. When Jeff knew of the intention of Max, he
decided also to demolish his 20-year old building and to
put up a new one. The demolition cost him P80,000 but
raised P35,000 from the scrap, and the construction cost
of the new 6-storey building was P15,000,000. As
between Matt and Jeff, who is entitled to claim loss as
deduction from gross income?

33 In 2009, Portia's residence was totally destroyed by fire.

The property had an adjusted basis and a fair market
value of P130,000 before the fire. During 2009, Portia
received insurance reimbursement of P120,000 for the
destruction of her home. Portia's 20098 adjusted gross
income was P70,000. Portia had no casualty gains during
the year. What amount of the fire loss was Portia entitled
to claim as an itemized deduction on her 2010 tax return?

34 In 2007, Violet constructed an office building worth

P2,000,000. In 2009 when it had an accumulated
depreciation of P72,000 the building was totally destroyed
by fire. Assuming that the amount recoverable from
Standard Insurance Company is P500,000, the deductible
loss of Violet is

35 All of the following, except one, are requisites in the carry

over of net operating loss
36 Statement 1: The term "net operating loss" shall mean
the excess of allowable deduction over gross income of
the business in a taxable year.
Statement 2: Nonresident foreign
corporations are not entitled to deduct NOLCO from their
gross income. Statement 3: The NOLCO
which had not been offset as deduction from gross income
shall be carried over as a deduction from gross income for
the next taxable year immediately following the year of
such loss. Which of the above
statements is/are false?

37 Cee Company was merged into Jay Company. Cee

Company transferred all its properties with a book value
of P4,000,000 to Jay Company for which it received shares
of the latter with a fair market value of P3,600,000.
Santiago was a stockholder of Cee Company (which he
acquired at a cost of P500,000) when the merger was
effected and received shares of stock of Jay Company with
a fair market value of P360,000. The amount of loss
deductible by Cee Company is

38 Santiago made a contribution of P15,000 to St. Dominic

Parish Church. He had a gross income from business of
P500,000 and deductions (excluding contribution) of
P400,000. From this contribution, how much will be
allowed as deduction from his gross income?

39 Lester uses accrual method of accounting. She owns a

land which she leased to Georgia for 2 years at an annual
rental of P100,000. On July 1, 2009, she received P
200,000 from Gerogia representing the rental covering
the period July 1, 2009 to June 30, 2011. In 2009, Lester
will report an income subject to tax of

40 All of the following, except one, are considered as

"constructive receipts" for income tax purposes. Which is
the exception?

41 The following statements are true, except:

42 Monte Carlo, married with three (3) qualified dependent
children, a regular employee of SMC Inc., receives on July
6, 2009 P30,000 as regular monthly salary and half of his
13"'- month pay amounting to P15,000 plus other benefits
such as rice allowance for July of P2,000, incentive pay of
P20,000, hazard pay of P1,000, overtime pay of P4,000
and night shift differential of P2,000, Compute the
income subject to withholding tax in July.

43 The income tax returns must be filed in

44 One of the following is not an attachment to the income
tax return of a company whose gross quarterly sales is
P1,500,000.

45 Which of the following individual taxpayers is not required

to file an income tax return?

46 One of the following individuals is not subject to

withholding tax on compensation

47 F&G Corporation had a net income per books on

December 31, 2009 of P220,000. Included in the net
-income are the following items: Dividend income from a
domestic corporation, P50,000; Interest on bank deposit
(net of tax), P5,000; and, provision for bad debts,
P35,000. The taxable income of F&G Corporation for the
year ended December 31, 2009

48 Statement 1. Persons deriving capital gains from the sale

or exchange of listed shares of stock not traded through
the local stock exchange shall file a return within 30 days
after each transaction.
Statement 2. The ceiling of de minimis
benefits on rice allowance is one sack of 50 kilogram rice
or cash of P1,200 per month.
Statement 3. The wash sale
prohibition does not apply in the case of a dealer in stock
if the sale or other disposition of stock is made in the
ordinary course of the business of such dealer.

49 The following are the motives of a taxpayer that preclude

the transfer in contemplation of death, except one
50 In default of testamentary heirs, the law determines who
are to succeed to the inheritance of the deceased. Which
of the following ranks first in the order of succession?

51 Bethsaida died leaving the following properties:

Stocks of SM Corporation (2,000 shares) -
listed in the Philippine Stock Exchange (highest - P 40;
lowest - P 39). Common
Stocks of HCG Corporation (1,500 shares) - not listed in
the stock exchange. Cost - P50 per share; book value -
P45 per share.
Car (cost P600,000; book value - P350,000; market
value - P400,000)
Real properties (zonal value -
P120,000; assessed value `. P72,000)
The gross estate
of Bethsaida is

52 Case 1 - Designation of the beneficiary is revocable.

Case 2 - Designation of the beneficiary is
irrevocable. Case 3- Policy is silent as to
whether the designation is revocable or irrevocable.
In which of the above
cases will the proceeds be exempt from estate tax,
assuming that the beneficiary of the life insurance
proceeds is neither the estate, the executor nor the
administrator of the estate?

53 All of the following, except one, are deductible from the

gross estate of a decedent who died October 1, 2010.
54 Leiden wrote a letter to Renie Boy on December 31, 2008
donating his car worth P350,000. The letter was received
by the latter on January 7, 2009 who accepted the
donation. The letter of acceptance was received only by
Leiden on January 15, 2009. The donor's tax was not paid
until May 22, 2010. The donation was consummated on

55 On August 18, 2008 Eliza loaned to her sister Samantha

P200,000 at an interest of 12% per annum payable one
(1) year thereafter. One month before the debt becomes
due, Martha's husband died. Consequently, Eliza informed
her sister that she is condoning the loan including the
interest. How much is the value of the donation made by
Eliza to Samantha?
56 Which of the following examples is not taxable?

57 A tax minimization scheme which is done by spreading

the gift over numerous calendar years to avail of lower tax
liability

58 In value-added taxation, this is not a requirement for

taxability of service
59 S. Magler imported cigarettes from the United States for
sale in the Philippines. What business taxes in the
Philippines are due?

60 Versoza filed a fraudulent income tax return for the year

2006 on April 11, 2007. The Bureau of Internal Revenue'
(BIR) discovered the fraud on February 20, 2008. The last
day for the BIR to collect or to send an assessment notice
is
legislative in character administrative feasibility

False, False False, True

inherent limitations constitutional limitations

All statements are true Only one statement is true

P 20,000 P75,000

P 64,000 P 200,000
False, False False, True

P1,013,500 P1,000,000

75,000 140,000

Subject to final tax Partly exempt, partly taxable

Classified as an asset and claim an annual Claimed entirely as deduction from its 2007
depreciation over the life of the building. gross income.
P 576,000 P343,000

10% Zero

Regular rates of 32% of its net taxable Allocation of income from sources within and
income. without the Philippines, as well as expenses.

P 160,000 P 288,000

The stock dividends declared are taxable The dividends are taxable to the
because generally, stock dividends are stockholders because they are actually
subject to income tax. property dividends.
P 10,500 P 3,000

constructive receipt of income accrual method of accounting

P 165,000 192,500

P 72,600 None

trustor beneficiary
50,000 30,000

an inheritance pacto de retro

Revocable trust Unregistered partnerships

P 8,000 P0

wash sale short sale

P 210,000 P 150,000

Replacement of the roof of the office Premiums paid on a life insurance policy of a
building. rank-and-file employee with the latter's
children as the appointed beneficiary.

Land sold by the church. Land foreclosed by the bank.

Privilege tax Occupation tax

Resident aliens Domestic corporation
Neither of them. Both of them.

P0 P 8,500

P 1,428,000 None

Even if the corporation paid tax based on There must be no substantial change in the
MCIT, the running of the prescriptive period ownership of the business.
is not interrupted.
Statement 3 only. None

P 140,000 None

P 10,000 None

P 100,000 P 50,000

Property borrowed by the taxpayer. Bond interest coupons which have matured
but which have not been redeemed

Fringe benefit tax shall be treated as a final The grossed-up monetary value of the fringe
income tax on the employee withheld and benefit is the actual amount received by the
paid by the employer on a quarterly basis. employee.
P 72,500 P 57,000

Quadruplicate Quintuplicate
Schedule of income producing properties Summary of taxes paid during the taxable
year

An employee whose salary grade in the An employee receiving purely compensation

government is 2. income from two employers.

a. An individual who derives compensation b. An individual who has compensation and

from two or more employers at any time business income.
during the taxable year.

165,000 P 130,000

True, False, True True, True, True

To make dependents financially To avoid payment of estate tax.

independent.
surviving spouse legitimate parents

P 666,500 P 618,500

Case 2 only All of cases

Income tax on income earned from January 1 Gift taxes on donations given June 15, 2010.
to September 30, 2010.
May 22, 2010 January 7, 2009

P 222,000 P 200,000
Alma and Russel are the only heirs of Glenda, a Filipino citizen, donated a parcel of
Cordova. Alma renounces her share of land located in the United States to Blythe, a
inheritance in favor of Russel. nonresident alien.

Donation of fife insurance Void donation

Consideration received actually or In the course of business

constructively
VAT, excise tax, other percentage tax VAT and excise tax

April 11, 2010 April 15, 2010

theoretical justice

True, False

legislative in character

All statements are false

P33,000

None
True, False

P13,500

190,000

Part of taxable income

Classified as an asset or expensed outright,

at the option of the government
P147,000

30%

Gross Philippine Billings minus deductible

expenses.

P 17,500

The redemption of the stock dividend is

essentially equivalent to the distribution of a
taxable dividend. Hence, the amount so
distributed shall be considered as taxable
income.
P 9,000

actual receipt of income

P 218,750

P 44,550

devisee
2,500

a will

Estates under judicial settlement.

P 3,000

auction sale

P 120,000

Tuition fees and other expenses of the

taxpayer's children.

Land sold to government corporation.

Value-added tax
Nonresident aliens with reciprocity
Jeff only.

P 8,600

P 2,000,000

The carry-over is good only for one(1) year.

Statement 1 only.

P 400,000

P15,000

P 200,000

The share of the profits of a partner in a

general professional partnership.

The grossed-up monetary value of the fringe

benefit shall be determined by dividing the
monetary value of the fringe benefit by the
gross monetary value factor.
P 30,000

Duplicate
Certified balance sheets

An individual receiving purely compensation

income from one employer, the income tax
of which has been withheld correctly, but
whose spouse is required to file an income
tax return.

c. An individual whose gross income in a year

is more than P220,000.

P 200,000

True, False, False

To save income and property taxes.

illegitimate children (RPCPA)

P 867,500

Case 1 only

Real property taxes payable during the last

quarter of 2010.
January 15, 2009

P 224,000
On May 8, 2010, Armand made a gift of
P500,000 to his daughter, Betsy, on account
of her marriage celebrated May 1, 2009.

Splitting of gift

Performed within or outside the Philippines

Other percentage tax and excise tax

April 15, 2017

inherent limitation A -

True, True D -

theoretical justice B -

Only one statement is false A -

P41,000 B -

96,000 B -
True, True A -

P1,500 A -

740,000 C -

Exempt from income tax D -

Classified as an asset or expensed outright, D -

at the option of the taxpayer.
P160,000 C -

20% A -

Gross Philippine Billings D -

P 30,000 C -

The distribution and the redemption of the C -

stocks are not taxable because stock
dividends are exempt from income tax.
P 30,000 C

advance reporting of income. A -

187,500 A -

45,900 B -

legatee D -
5,500 C -

a trust D -

Irrevocable trust A -
P 4,000 B -

rescissible sale B -

P 180,000 A -

Premiums paid in insuring the life of the B -

Corporate President, appointing-the
corporation as the beneficiary of the policy.

None of the above B -

Business tax C -
Non-resident citizens B -
Matt only. C -

10,000 A -

P 1,928,000 D -

Carry-over is not allowed if the corporation is C -

subject to MCIT during the taxable year.
Statements 1 and 2 A -

P 4,000,000 B -

P 100,000 A -

P 50,000 C -

Interest credited on bank savings deposit. A -

The person liable for fringe benefit tax is the B -

employer, whether he is an individual,
professional partnership or a corporation
regardless of whether the corporation is
taxable or not or the government and its
instrumentalities.
P 45,500 B -

Triplicate C -
Profit and loss statements B -

A citizen receiving compensation and A -

business income.

d. An individual whose monthly gross D -

compensation income is P8,000.

P 220,000 C -

False, False, False A -

To relieve the taxpayer of the burden of B -

management.
legitimate children D -

P624,000 A -

Cases 1 and 3 A -

Income tax on income earned during the last D -

quarter of 2010.
December 31, 2008 C -

None A -
Ayala, a multi-millionare, gives his wife an A -
emerald ring worth P100,000 as a birthday
gift.

Spread-out method C -

Supply of service is not exempt from VAT. C -

VAT and percentage tax B -

February 20, 2018 D -