1. Sad Company accepted a 200,000. 90-day, 12% interest bearing note dated November 15, 2021 from a customer.

On December 16, 2021, Sad discounted the note at Finance Company at 15% discount rate. Sad Company informed
the maker of the note regarding the discounting arrangement. On maturity date, the maker of the note did not pay the
note and as a result, Finance Company charged Sad Company for the total amount due plus 2,000 protest fee.

How much should Sad Company pay to Finance Company, when the maker fails to pay the note upon the maturity?
a. None b. 202,000 c. 206,000 d. 208,000

2. Everwood Co. issues 10,000 shares of 10 par value convertible preference shares for 12 cash per share. Each share
is convertible into 4 ordinary shares. On this date the 1 par value ordinary shares are selling for 3 per share.
Approximately 2 years later, Everwood’s shareholders convert their preference shares into ordinary shares. On the
date of conversion the preference shares are selling for 16 and the ordinary shares are selling for 5 per share. The
journal entry on the date of conversion will include which of the following?
a. Credit Share Capital—Preference 20,000.
b. Credit Share Premium—Ordinary 80,000.
c. Credit Share Capital—Ordinary 100,000.
d. Credit Share Premium—Ordinary 160,000.

3. Palmer Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Palmer
Frosted Flakes boxes and 1.00. The company estimates that 60% of the boxtops will be redeemed. In 2021, the
company sold 675,000 boxes of Frosted Flakes and customers redeemed 330,000 boxtops receiving 110,000 bowls.
If the bowls cost Palmer Company 2.50 each, how much liability for outstanding premiums should be recorded at the
end of 2021?
a. 25,000 b. 37,500 c. 62,500 d. 87,500

4. Temporal Company owned 50,000 ordinary shares held for trading. These 50,000 were purchased 120 per share.
During the year, the investee distributed 50,000 stock rights to the investor. The investor was entitled to buy one new
share for P90 cash and two of these rights. Each share had a market value of P130 and each right had a market
value of P20 on the date of issue.
What total cost should be recorded for the new shares that are acquired by exercising the rights?
a. 2,250,000 b. 3,250,000 c. 3,050,000 d. 5,500,000

5. The net income for Akira Industries for 2021 was 302,000. During 2021, depreciation on plant assets was 114,000,
amortization of patent was 50,000, and the company incurred a loss on sale of plant assets of 27,000. What is the
net cash flow from operating activities?
a. 111,000 b. 439,000 c. 339,000 d. 493,000

6. At the beginning of current year, Illusion Company acquired an entity instrument for P 4,000,000 to be measured at
fair value through other comprehensive income. The entity incurred direct acquisition cost of P700,000.
At year-end, fair value of the instrument was P5,500,000 and the transaction cost that would be incurred on the sale
of the investment were estimated at P600,000.

What amount of unrealized gain should be recognized in other comprehensive income for the current year?
a. 200,000 b. 900,000 c. 800,000 d. 0
7. Fuller Food Company distributes to consumers coupons which may be presented (on or before a stated expiration
date) to grocers for discounts on certain products of Fuller. The grocers are reimbursed when they send the coupons
to Fuller. In Fuller's experience, 50% of such coupons are redeemed, and generally one month elapses between the
date a grocer receives a coupon from a consumer and the date Fuller receives it. During 2021 Fuller issued two
separate series of coupons as follows:

Consumer Amount Disbursed

Issued On Total Value Expiration Date as of 12/31/2021
1/1/2021 375,000 6/30/2021 177,000
7/1/2021 540,000 12/31/2021 225,000
The only journal entries to date recorded debits to coupon expense and credits to cash of 536,000. The December
31, 2021 statement of financial position should include a liability for unredeemed coupons of
a. 0. b. 45,000. c. 93,000. d. 270,000.

8. During 2020, Haggard Company purchased marketable equity securities for P1,850,000 to be held as trading
investments. In 2020, to entity appropriately reported an unrealized loss of P200,000 in the income statement.

There was no change during 2020 in the composition of the portfolio of trading securities. Pertinent data on
December 31, 2021 are as follows:

Security Cost Market Value

A 600,000 700,000
B 450,000 400,000
C 800,000 900,000

What amount of unrealized gain on these securities should be included in 2021 income statement?
a.350,000 b.150,000 c.550,000 d. 0

9. On January 1, 2021, Elaine Company reported fair value on plan assets at 6,500,000 and projected benefit obligation
at 7,500,000.

During the current year, the entity determined that the current service cost was 1,200,000 and the discount rate is
10%. The actual return on plan assets was 800,000 during the year.

The entity provided the following information during the year related to the defined benefit plan.

Contribution to the plan 1,200,000

Benefits paid to retirees 1,500,000
Decrease in projected benefit
obligation due to change
in actuarial assumptions 200,000

What is the total remeasurement gain?

a. 350,000 b. 150,000 c. 200,000 d. 800,000
10. On January 1, 2021 Liga Company purchased 15% bonds with face value of P 4, 550, 000 for P 5, 250, 000. The
bonds provide an effective yield of 10%. The bonds are dated January 1, 2021, mature on January 1, 2027 and pay
interest annually on December 31, 2021. The bonds are quoted at 120 on December 31, 2021. The entity has
selected the fair value option for the bond investment.

What total income should be reported for 2021?

a. 460, 000 b. 892, 500 c. 787, 500 d. 210, 000
11. The following information relate to the Lily Co. postretirement benefits plan for 2021:

Service cost P250,000

Discount rate 9%
PBO, January 1, 2021 P1,500,000

Benefit payments to employees P115,000

The amount of postretirement expense for 2021 is

a. 385,000 b. 305,000. c. 350,000. d. 420,000.

32. At the beginning of the current year, Ramirez Company leased a machinery with the following information:

Annual rental payable at the end of each year 1,000,000

Residual value guarantee 500,000
Payment to lessor to obtain a long-term lease 300,000
Cost of dismantling and restoring the asset as required
by contract at present value 390,000
Annual executory cost paid by lessee 50,000
Lease term 4 years
Useful life of machinery 8 years
Implicit interest rate 10%
Present value of an ordinary annuity of 1 at 10% for 4 periods 3.17
Present value of 1 at 10% for 4 periods 0.68

What is the cost of right of use asset?

a. 4,200,000 b. 4,250,000 c. 3,810,000 d. 3,900,000

13. Coral Company accounts for noncurrent assets using the cost model. On July 31, 2020, the entity classified a
noncurrent asset as held for sale. At that date, the asset’s carrying amount was P1,450,000, the fair value was
estimated at P2,150,000 and the costs of disposal at P150,000. The asset was sold on January 31, 2021 for
P2,120,000.

At what amount should the asset be measured on December 31, 2020?

a. 2,000,000 b. 2,150,000 c. 2,120,000 d. 1,450,000

14. Eckert Corporation's partial income statement after its first year of operations is as follows:
Income before income taxes 3,750,000
Income tax expense
Current 1,035,000
Deferred 90,000 1,125,000
Net income 2,625,000
 Eckert uses the straight-line method of depreciation for financial reporting purposes and accelerated depreciation for
tax purposes. The amount charged to depreciation expense on its books this year was 1,500,000. No other
differences existed between book income and taxable income except for the amount of depreciation. Assuming a
30% tax rate, what amount was deducted for depreciation on the corporation's tax return for the current year?
a. 1,200,000 b. 1,425,000 c. 1,500,000 d. 1,800,000

15. Watson Corporation prepared the following reconciliation for its first year of operations:
Pretax financial income for 2021 1,200,000
Tax exempt interest (100,000)
Originating temporary difference (300,000)
Taxable income 800,000
The temporary difference will reverse evenly over the next two years at an enacted tax rate of 40%. The enacted tax
rate for 2021 is 28%. What amount should be reported in its 2021 income statement as the current portion of its
provision for income taxes?
a. 224,000 b. 320,000 c. 336,000 d. 480,000

16. Pullman Corporation had retained earnings of 700,000 at January 1, 2020. During the year the company experienced
a net loss of 300,000 and declared cash dividends of 80,000. It was discovered in 2020 that 50,000 of repair expense
was debited to the land account in 2019. The income tax rate is 20%. Determine the retained earnings balance at
December 31, 2020.
a. 270,000 b. 360,000 c. 350,000 d. 280,000

17. Concord Company sells motorcycle helmets. In 2021, the entity sold 4,000,000 helmets before discovering a
significant defect in their construction. By December 31, 2021, two lawsuits had been filed against the entity. The first
lawsuit, which the entity has little chance of winning, is expected to be settled out of court for 1,500,000 in January
2022. The legal counsel believed that the entity has a 50-50 chance of winning the second lawsuit, which is for
1,000,000.

What is the accrued liability on December 31, 2021 as a result of lawsuits?

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

18. Given the following:

Net income 600,000
EPS 4.25
Dividend/ordinary shares 2.00
Weighted average ordinary shares outstanding 120,000
Determine the amount of the preference share dividend.
a. 360,000 b. 240.000 c. 120,000 d. 90,000

19. In year 1, a tornado completely destroyed a building belonging to Holland Corp. The building cost
P100,000 and had accumulated depreciation of P48,000 at the time of the loss. Holland received a cash
settlement from the insurance company and reported an extraordinary loss of P21,000. In Holland’s year
1 cash flow statement, the net change reported in the cash flows from investing activities section should
be a
a. P10,000 increase.
b. P21,000 decrease.
c. P31,000 increase.
d. P52,000 decrease.
20. A six-year finance lease expiring on December 31 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 fifth year applicable to the reduction of the net lease liability should be
a. Less than in the fourth year.
b. More than in the fourth year.
c. The same as in the sixth year.
d. More than in the sixth year.

21. On January 1, year 1, Nobb Corp. signed a twelve-year lease for warehouse space. Nobb has an option
to renew the lease for an additional eight-year period on or before January 1, year 5. During January year
3, Nobb made substantial improvements to the warehouse. The cost of these improvements was
P540,000, with an estimated useful life of fifteen years. At December 31, year 3, Nobb intended to
exercise the renewal option. Nobb has taken a full year’s amortization on this leasehold. In Nobb’s
December 31, year 3 balance sheet, the carrying amount of this leasehold improvement should be
a. P486,000
b. P504,000
c. P510,000
d. P513,000

22. On December 31, year 1, Lane, Inc. sold equipment to Noll, and simultaneously leased it back for twelve
years. Pertinent information at this date is as follows:
Sales price P480,000 Carrying amount 360,000 Estimated remaining economic life 15 years At December
31, year 1, how much should Lane report as deferred gain from the sale of the equipment?
a. P0
b. P110,000
c. P112,000
d. P120,000

23. A lessee had a ten-year finance lease requiring equal annual payments. The reduction of the lease
liability in year two should equal
a. The current liability shown for the lease at the end of year one.
b. The current liability shown for the lease at the end of year two.
c. The reduction of the lease obligation in year one.
d. One-tenth of the original lease liability.

24. The following costs were incurred by Griff Co., a manufacturer, during year 1:
Accounting and legal fees P 25,000 Freight-in 175,000 Freight-out 160,000 Officers salaries 150,000
Insurance 85,000 Sales representatives salaries 215,000 What amount of these costs should be reported
as general and administrative expenses for year 1?
a. P260,000
b. P550,000
c. P635,000
d. P810,000

25. In year 2, a contract dispute between Dollis Co. and Brooks Co. was submitted to binding arbitration. In
year 2, each party’s attorney indicated privately that the probable award in Dollis’ favor could be
reasonably estimated. In year 3, the arbitrator decided in favor of Dollis. When should Dollis and Brooks
recognize their respective gain and loss?
Dollis’ gain Brooks’ loss
a. Year 2 Year 2
b. Year 2 Year 3
c. Year 3 Year 2
d. Year 3 Year 3
26. LeMay Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 4 boxtops from
LeMay Frosted Flakes boxes and P1.00. The company estimates that 60% of the boxtops will be
redeemed. In 2018, the company sold 500,000 boxes of Frosted Flakes and customers redeemed
220,000 boxtops receiving 55,000 bowls. If the bowls cost LeMay Company P2.50 each, how much
liability for outstanding premiums should be recorded at the end of 2018?
a. P20,000
b. P30,000
c. P50,000
d. P70,000
27. Ermler Corporation has P1,800,000 of short-term debt it expects to retire with proceeds from the sale of
60,000 ordinary shares. If the shares are sold for P20 per share subsequent to the statement of financial
position date, but before the statement of financial position is issued, what amount of short-term debt
could be excluded from current liabilities?
a. P1,200,000
b. P1,800,000
c. P600,000
d. P0

28. Hoyt Corp.’s current balance sheet reports the following stockholders’ equity:
5% cumulative preferred stock, par value P100 per share; 2,500 shares issued and outstanding P250,000
Common stock, par value P3.50 per share; 100,000 shares issued and outstanding 350,000 Additional
paid-in capital in excess of par value of common stock 125,000 Retained earnings 300,000 Dividends in
arrears on the preferred stock amount to P25,000. If Hoyt were to be liquidated, the preferred
stockholders would receive par value plus a premium of P50,000. The book value per share of common
stock is
a. P7.75
b. P7.50
c. P7.25
d. P7.00

29. On January 1, year 1, Goliath entered into a five-year operating lease for equipment. In January year 3,
Goliath decided that it no longer needs the equipment and terminates the contract by paying a penalty of
P3,000. How should Goliath account for the lease termination costs?
a. Recognize P3,000 termination cost in year 3 as a loss from continuing operations.
b. Recognize P1,000 termination cost each year for the remaining three years of the lease term.
c. Recognize the P3,000 termination cost as an extraordinary item in year 3.
d. Recognize the P3,000 termination cost as a discontinued operation in year 3.

30. Zeff Co. prepared the following reconciliation of its pretax financial statement income to taxable income
for the year ended December 31, year 1, its first year of operations:
Pretax financial income P160,000 Nontaxable interest received on municipal securities (5,000) Long-term
loss accrual in excess of deductible amount 10,000 Depreciation in excess of financial statement amount
(25,000) Taxable income P140,000 Zeff’s tax rate for year 1 is 40%.

In its December 31, year 1 balance sheet, what should Zeff report as deferred income tax liability?
a. P2,000
b. P4,000
c. P6,000
d. P8,000

31. Black Co. requires advance payments with special orders for machinery constructed to customer
specifications. These advances are nonrefundable. Information for year 2 is as follows:
 Customer advances—balance 12/31/Y1 P118,000 Advances received with orders in year 2 184,000
Advances applied to orders shipped in year 2 164,000 Advances applicable to orders cancelled in year 2
50,000 In Black’s December 31, year 2 balance sheet, what amount should be reported as a current
liability for advances from customer?
a. P0
b. P 88,000
c. P138,000
d. P148,000

32. Warranty4U provides extended service contracts on electronic equipment sold through major retailers.
The standard contract is for three years. During the current year, Warranty4U provided 21,000 such
warranty contracts at an average price of P81 each. Related to these contracts, the company spent
P200,000 servicing the contracts during the current year and expects to spend P1,050,000 more in the
future. What is the net profit that the company will recognize in the current year related to these
contracts?
a. P451,000.
b. P1,501,000.
c. P150,333.
d. P367,000.

33. Vista newspapers sold 4,000 of annual subscriptions at P125 each on September 1. How much unearned
revenue will exist as of December 31?
a. P0.
b. P333,333.
c. P166,667.
d. P500,000.

34. The primary purpose of a statement of cash flows is to provide relevant information about
a. Differences between net income and associated cash receipts and disbursements.
b. An enterprise’s ability to generate future positive net cash flows.
c. The cash receipts and cash disbursements of an enterprise during a period.
d. An enterprise’s ability to meet cash operating needs.

35. During year one, Ral Corp. exchanged 5,000 shares of its own P10 par common stock for land with a fair
market value of P75,000. As a result of this exchange, Ral should report in its year one tax return:
a. No gain.
b. P25,000 Section 1245 gain.
c. P25,000 Section 1231 gain.
d. P25,000 ordinary income.

36. Lyle, Inc. is preparing its financial statements for the year ended December 31, year 2. Accounts payable
amounted to P360,000 before any necessary year-end
adjustment related to the following:
At December 31, year 2, Lyle has a P50,000 debit balance in its accounts payable to Ross, a supplier,
resulting from a P50,000 advance payment for goods to be manufactured to Lyle’s specifications.
Checks in the amount of P100,000 were written to vendors and recorded on December 29, year 2. The
checks were mailed on January 5, year 3.
What amount should Lyle report as accounts payable in its December 31, year 2 balance sheet?
a. P510,000
b. P410,000
 c. P310,000
d. P210,000

37. Star Co. leases a building for its product showroom. The ten-year nonrenewable lease will expire on
December 31, year 11. In January year 6, Star redecorated its showroom and made leasehold
improvements of P48,000. The estimated useful life of the improvements is eight years. Star uses the
straight-line method of amortization. What amount of leasehold improvements, net of amortization, should
Star report in its June 30, year 6 balance sheet?
a. P45,600
b. P45,000
c. P44,000
d. P43,200