Intermediate Accounting 1 – Financial and non-financial assets

Conceptual Framework and accounting Standards

1. Which of the following is incorrect regarding the use of the term ‘reporting entity’ under the
Conceptual Framework?
a. A reporting entity one that is required, or chooses, to prepare financial statements.
b. A reporting entity must be a legal entity.
c. A reporting entity can be a parent and its subsidiaries viewed as a single entity.
d. All of these are correct.

2. Which of the following financial statements would not be dated as covering a certain reporting
period?
a. Statement of financial position
b. Statement of profit or loss and other comprehensive income
c. Statement of cash flows
d. Statement of changes in equity
3. What is the purpose of reporting comprehensive income?
a. To report changes in equity due to transactions with owners.
b. To report a measure of the overall financial performance of an entity.
c. To replace profit with a better measure.
d. To combine income from continuing operations with income from discontinued operations and
extraordinary items.

4. The information provided by financial reporting pertains to

a. individual business entities and the economy as a whole, rather than to industries or to
members of society as consumers
b. individual business entities, industries and the economy as a whole, rather than to members
of society as consumers
c. individual reporting entities, rather than to industries, the economy as a whole or members of
society as consumers
d. individual business entities and industries, rather than to the economy as a whole or to
members of society as consumers
5. Which of the following statements is correct when an entity departs from a provision of a
PFRS?
a. The entity’s financial statements would be grossly incorrect; therefore, PAS 1 does not allow
such a departure.
b. PAS 1 permits such a departure if the relevant regulatory framework requires, or otherwise
does not prohibit, such a departure.
c. PAS 1 requires certain disclosures when an entity departs from a provision of a PFRS.
d. b and c
6. Which of the following statements is correct regarding the classification of financial liabilities
as current or noncurrent in accordance with PAS 1?
a. Currently maturing obligations are presented as current liabilities even if their original term is
longer than one year and even if a refinancing agreement is completed after the end of the
reporting period but before the financial statements are authorized for issue.
b. Currently maturing obligations are presented as noncurrent liabilities only if their original term
is longer than one year.
c. Currently maturing obligations are presented as noncurrent liabilities only if a refinancing
agreement is completed after the end of the reporting period but before the financial
statements are authorized for issue.
d. Currently maturing obligations are presented as noncurrent liabilities if a refinancing
agreement is completed after the financial statements are authorized for issue.

7. According to PAS 1, the judgments and estimates embodied in the financial statements, for
example, materiality judgments, assessments of uncertainty and risk, and the like, are the
responsibility of the entity’s
a. management.
 b. accountant.
c. auditor.
d. janitor.

8. An entity’s financial position or condition refers to which of the following?

a. The status of the entity’s assets, liabilities and equity.
b. The amount of return that the entity has generated from its economic resources during the
period.
c. The level of change in the entity’s economic resources and claims to those resources, also
referred to as the economic phenomena.
d. All of these.

9. Comprehensive income excludes which of the following

a. Revaluation surplus
b. Gains and losses from investments measured at fair value through profit or loss
c. Income tax expense
d. Distributions to owners

10. Entity A needs guidance in preparing its statement of changes in equity. Entity A should refer
to which of the following?
a. PAS 1
b. PAS 2
c. PAS 7
d. PAS 8

11.An entity makes a change in accounting estimate. How does the entity recognize the effects of
the change in profit or loss?
a. Prospectively in the current period
b. Prospectively in the current and future periods
c. Retrospectively starting from the earliest period presented
d. a or b

12.Materiality does not make any difference with regard to

a. the separate presentation of items in the financial statements.
b. the disclosure of additional information in the notes.
c. intentional errors.
d. the level of rounding-off of amounts in the financial statements.

13. Identify the qualitative characteristics that enhance the usefulness of financial information.
I. Relevance
II. Reliability
III. Faithful representation
IV. Comparability
V. Verifiability
VI. Timeliness
VII. Understandability

a. I and II
b. I and III
c. II, III, IV, V and VII
d. IV, V, VI and VII

14. Under this qualitative characteristic, users are assumed to have a reasonable
knowledge of business activities and willingness to study the information with reasonable
diligence.
a. Relevance
b. Faithful representation
c. Understandability
d. Comparability

15.Which of the following statements is incorrect concerning materiality?

a. Materiality can be assessed quantitatively or qualitatively
b. There are no specific materiality thresholds provided under the PFRSs
c. Materiality is a matter of judgment
d. Materiality is a quantitative matter. It should never be assessed qualitatively.

16.The elements of faithful representation do not include

a. comparability.
b. neutrality.
c. completeness.
d. free from error.

17.The ability through consensus among measurers to ensure that information represents what it
purports to represent is an example of the concept of
a. relevance.
b. comparability.
c. verifiability.
d. feedback value.

18.According to the Conceptual Framework, the pervasive constraint on the information that can
be provided by financial reporting is
a. materiality.
b. historical.
c. cost-benefit.
d. going concern.

19.The element that is related to the measurement of an entity’s financial performance is

a. income.
b. expenses.
c. a and b
d. neither a nor b

20.According to the revised Conceptual Framework, an item is recognized if

a. it meets the definition of an asset, liability, equity, income or expense.
b. recognizing it would provide useful information.
c. it is probable that the item will result to an inflow or outflow of economic benefits and its cost
can be measured reliably.
d. a and b

21.Which of the following may result to an expense?

a. Increase in asset
b. Decrease in liability
c. Increase in liability
d. Distribution to holders of equity claims

22.The Conceptual Framework uses the term “economic resources” to refer to

a. assets.
b. equity.
c. liabilities.
d. income.
Cash and Cash Equivalents
23. In most situations, the petty cash fund is reimbursed just prior to the year-ended and an adjusting entry is made
to avoid
a. The understatement of cash with the appropriate statement of expenses.
b. The overstatement of cash and the understatement of expenses.
c. The understatement of cash and the overstatement of expenses.
d. The misstatement of revenues.
24. A cash short and over account is
a. not generally accepted.
b. Debited when the petty cash fund proves out over.
c. Debited when the petty cash fund proves out short
d. A contra account to cash.
25. Which of the following are basic characteristics of a system of cash control?
I. Use of voucher system.
II. Combined responsibility for handling and recording cash.
III. Daily deposit of all cash received.
IV. Internal audits at irregular intervals.
V. Making disbursements from the day’s collections to minimize cash balance for deposit.
a. I, II, III, IV and V
b. I, II, III, and IV
c. I, III, IV and V
d. I, III, and IV
26. A good internal control system for safeguarding cash provides procedures for
a. Making payments from the day’s collections.
b. Allowing one person to received cash and to record cash receipts.\
c. Preparing regular bank reconciliation.
d. Delaying the deposit of cash collections because no one knows for use the account to be credited.
27. Which of the following are considered cash for financial reporting purposes?
I. Petty cash funds and change funds.
II. Money orders, travelers’ checks, and personal checks.
III. Coin, currency, and available funds for current operations.
IV. Postdated checks and IOUs.
V. Savings account for employees’ travel
VI. Savings account for acquisition of equipment
VII. Savings account for acquisition of inventories.
a. I, II, III, IV, V, VI, and VII
b. I, II, III, V VI, and VII
c. I, II, III, IV, V and VI
d. I, II, III, V, and VII
28. A bank overdraft, should be
a. Reported as a deduction from the current asset section.
b. Reported as a deduction from cash.
c. Netted against cash and a net cash amount reported.
d. Reported as a current liability, when there is no valid basis for offsetting against another bank account.
29. The following items are included in an entity’s account “Cash and Cash equivalents” in the statement of financial
position. Which of the following items will require an adjusting entry to state Cash and Cash equivalents at its
correct balance?
a. Checks drawn before the reporting date but held for later delivery to creditors.
b. 60-day time deposits.
c. US dollars deposited in a foreign currency depository account.
d. Cash reserved for the acquisition of inventories.
 30. In preparing a monthly bank reconciliation, which of the following items would be added to the balance
reported on the bank statement to arrive at the correct cash balance?
a. Outstanding checks
b. Bank service charge
c. Deposit in transit
d. A customer note
31. Bank reconciliations are normally prepared on a monthly basis to identify adjustments need in the depositor’s
records and to identify bank errors. Adjustments should be recorded for
a. Bank errors, outstanding checks, and deposit in transit.
b. All reconciling items except bank errors, deposits in transit, and outstanding checks.
c. Boor errors, bank errors, deposit in transit, and outstanding checks.
d. Outstanding checks and deposits in transit.
32. If the cash balance shown in a company’s accounting records is less than the correct cash balance, and neither
the company nor the bank has made any errors, there must be
a. Deposits credited by the bank but not yet recorded by the company.
b. Outstanding checks.
c. Bank charges not yet recorded by the company.
d. Deposit in transit.
33. Deposits held as compensating balances
a. Usually do not earn interest.
b. If legally restricted and held against short-term credit may be included as cash.
c. If legally restricted and held against long-term credit may be included among current assets
d. If legally restricted and held against short-term credit should not be included in the cash balance but are
reported among current asset.
34. Proof of cash is a
a. Proof of a company’s liquid position.
b. Reconciliation of the cash receipts and payments during the previous period, together with the beginning
and ending balances of cash.
c. Proof of the existence of as cash deposit in a bank.
d. Reconciliation of the cash receipts and payments during the current period, together with the beginning
and ending balances of cash.
35. Ace Company had the following account balances at December 31, 2020:
Cash on hand P 125,000
Cash in banks 2,250,000
Cash legally restricted for additions to plant
(to be disbursed in 2020) 1,600,000
Cash in banks include compensating balances against short-term borrowing arrangements. The compensating
balances are bit legally restricted as to withdrawal by Ace.
In the current assets section of Ace’s December 31, 2020 statement of financial position, total cash should be
reported at
a. P1,775,000
b. P2,250,000
c. P2,375,000
d. P3,975,000
C Cash in banks P2,250,000
Cash on hand 125,000
Total cash P2,375,000

26. Malakas Company’s checkbook balance at December 31, 2020 was P50,000. In addition, Malakas held the following
items in its safe on that date.
 Check payable to Malakas, dated December 31, 2020 in payment of a sale made in December 2020 not
included in December 31, checkbook balance, P20,000.
  Check payable to Malakas, deposited December 15 but returned by bank on December 30 marked
“NSF”. The deposit and the return were both reflected in the checkbook, P5,000.
 Check drawn on Malakas Company’\s account, payable to a vendor, dated December 30, but not yet
mailed to payee as of December 31, 2020. The check is not yet recorded.
The amount to be shown as Cash on Malakas’ statement of financial position at December 31, 2020 is
a. P48,000
b. P65,000
c. P68,000
d. P70,000

D Checkbook balance P50,000

Check payable to Bataan properly dated but not included in
checkbook balance 20,000
Correct cash balance P70,000

27. The Gem Company’s ledger showed a balance in its cash account at December 31, 2020 of P682,250, which was
determined to consist of the following:
Petty cash fund P 3,600
Checking account in Chinabank (check of P6,000 is still
Outstanding) 336,750
Notes receivable in the possession of a collecting agency 25,000
Receipts not yet deposited, including a postdated check
For P10,500 and traveler’s check for P10,000 178,000
Bond sinking fund – cash 127,500
IOUs signed by employees 4,950
Paid vouchers, not yet recorded 6,450
Total P682,250

B Cash balance per ledger P682,250

Notes receivable in the possession of a collecting agency (25,000)
Post-dated check included in the undeposited receipts (10,500)
Bond sinking fund cash (127,500)
IOUs signed by employees (4,950)
Paid vouchers not yet recorded (6,450)
Correct cash on hand and in banks P507,850
OR
Petty cash fund P 3,600
Checking account in Metrobank 336,750
Undeposited receipts (178,000 – 10,500) 167,500
Correct cash on hand and in banks P507,850

28. -29. Upon examination of the petty cash fund of Modern Company on January 3, 2021, the following items were
found:
Total bills and coins P 1,825
Certified check of general manager dated December
15, 2020 1,500
Petty cash vouchers (PCVs) not yet replenished:
PCV #7163 postage stamps 280
PCV #7164 supplies 650
PCV #7165 IOU of employee 500
Company check representing replenishment of petty
 Cash fund 5,150
Unused postage stamps 120
An envelope containing contributions of employees for
The death of a fellow employee (contents intact) 3,000
The petty cash fund was established for an amount of P10,000.
What is the correct amount of petty cash fund at December 31, 2020?
a. P9,905
b. P8,475
c. P6,975
d. P1,825
What is the amount of cash shortage or overage?
a. P95 shortage
b. P25 overage
c. P215 shortage
d. Cannot be determined.

30-32. BAM Company is making a four-column bank reconciliation at June 30 from the following data. The amounts
per bank statement were:
Balance, May 31 P 650,000
June receipts 1,300,000
June disbursements 1,100,000
The amounts per books were:
Balance, May 31 P 763,500
June receipts 1,154,800
June disbursements 1,123,500
Balance, June 30 794,800
Deposit in transit
May 31 P 120,000
June 30 150,000
Outstanding checks
May 31 67,000
June 30 84,000
The bank overlooked a check for P7,500 when recoding a deposit on June 10.
Note collected by bank, recorded after receiving the bank statement, June, P180,000
Service charge, recorded after receiving the bank statement,
May 31 P 4,500
June 30 6,000
NSF checks, recorded after receiving the bank statement
May 31 P 56,000
June 30 48,000
BAM recorded a P37,400 check received from a customer in June as P34,700.
The corrected cash balance on June 30 is
a. P908,500
b. P916,000
c. P923,500
d. P1,007,500
The corrected June receipts is
a. P1,157,500
b. P1,330,000
c. P1,334,800
d. P1,337,500
The corrected amount of June disbursements is
a. P1,083,000
b. P1,117,000
c. P1,125,000
d. P1,130,000

Receivables
1. Receivables from officers, employees, or affiliated companies should be reported in the statement of financial
position as
a. Current assets, if collectible within twelve months.
b. Non-current assets only.
 c. Trade notes and accounts receivable if they otherwise qualify as current assets.
d. Offsets to capital.
2. Under the allowance method of recording cash discounts, sales discounts are recorded
a. When offered at the date of sale.
b. When the account is collected within the discount period.
c. Only when not taken within the discount period.
d. When the customer pays beyond the discount period.
3. If a company employs the gross method of recording accounts receivable from customers, then sales discounts
taken should be reported as
a. A deduction from sales in the statement of comprehensive income.
b. An item of “other expense” in the statement of comprehensive income.
c. A deduction from accounts receivable in determining the net realizable value of accounts receivable.
d. A deduction from the cost of goods sold in the statement of comprehensive income.
4. If the company employs the net method of recording accounts receivable from customers, then sales discounts not
taken should be reported as
a. A deduction from sales in the statement of comprehensive income.
b. An item of other expense in the statement of comprehensive income.
c. An item of other income in the statement of comprehensive income.
d. A deduction from the gross accounts receivable to arrive at amortized cost.
5. An entity uses the allowance method of accounting for uncollectible accounts. What is the effect on profit and
amortized cost of accounts receivable of the entry to write-off accounts receivable?
Profit Amortized cost of A/R
a. None none
b. Decrease decrease
c. Increased increase
d. Decrease none
6. When the allowance method of recognizing uncollectible accounts expense is used, the entries at the time of
collection of an account previously written off would
a. Increase profit
b. Decrease profit
c. Increase the allowance for uncollectible accounts.
d. Increase the amortized cost of accounts receivable
7. How would you describe the total amount determined by an entity in this series of computations based on an aging
schedule of accounts receivable: 2% of the total peso balance of accounts receivable from 1-60 days past due, plus
5% of the total peso balance of accounts from 61-120 days past due and so on?
a. It is the amount of uncollectible accounts expense reported in the statement of comprehensive income.
b. It is the amount of the adjusting entry for the allowance for uncollectible accounts at year-end.
c. It is the required credit balance of the allowance for uncollectible accounts at year-end.
d. This amount plus the total amount of uncollectible accounts expense.
8. What is the initial recognition basis of a non-interest bearing note received in exchange for property?
a. At fair value of the property or note.
b. At maturity value of the note.
c. At face value of the note.
d. At the carrying amount of the property.
9. Which form of receivables financing is equivalent to an absolute sale of accounts receivable?
a. Pledge of accounts receivable.
b. Assignment of accounts receivable.
c. Factoring.
d. Discounting of notes receivable
10. When the allowance method of recognizing bad debts expense is used, the entry to record the write-off of a
specific uncollectible account would decrease
a. the allowance for doubtful accounts.
b. the profit for the period.
 c. the net realizable value of accounts receivable.
d. the working capital.
11.Which of the following is true when accounts receivable are factored without recourse?69

a. The transaction may be accounted for either as a secured borrowing or as a sale, depending upon
the substance of the transaction.
b. The receivables are used as collateral for a promissory note issued to the factor by the owner of the
receivables.
c. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the
receivables.
d. The financing cost (interest expense) should be recognized ratably over the collection period of the
receivables.
Debt Investments MC
1 . On July 1, Year 2, Marvelous Company purchased P10 million of West Company ‘s 8% bonds due on Julu 1. Year 10.
Based on the company’s business model for the portfolio of investments, Marvelous designates the bonds as
investments measured at amortized cost. The bonds, which pay interest semi-annually on January 1 and July 1 were
purchased for P8,750,000 to yield 10%.
In its statement of comprehensive income for the year ended December 31, Year 2, Marvelous Company should report
interest income of
a. P350,000
b. P400,000
c. P437,500
d. P500,000
C Interest income (8,750,000 x 5%) P437,500

2. On July 1, Year 2, Superb Company purchased 4,000 of the P1,000 face amount, 8% bonds of Oat Corp. for
P3,692,000 to yield 10% per annum. The bonds, which mature on July 1, Year 5, pay interest semi-annually on January 1
and July 1. Superb classifies the securities as at amortized cost.
What is the investment carrying value at December 31, Year 2?
a. P3,975,400
b. P3,741,200
c. P3,716,600
d. P3,667,400

C Investment cost, July 1, Year 2 P3,692,000

Nominal interest (4,000,000 x 4%) 160,000

Effective interest (3,692,000 x 5%) 184,600
Amortization of discount 24,600
Investment carrying value, December 31, Year 2 P3,716,600

3. Using the same information in no. 2, hoOw much is the interest revenue reported by Superb Company in its
statement of comprehensive income for year ended December 31, Year 2.
a. 200,000
b. 190,800
c. 184,600
d. 160,000

P3,692,500 x 5% = P184,600

4. On January 1, Year 2, Grand Company purchased as held for collection investmentP1,000,000 face value of
Greek Company’s 8% bonds for P912,400. The bonds were purchased to yield 10% interest. The bonds mature
on January 1 Year 7, and pay interest annually on January 1.
What amount should Grand Company report on its December 31, Year 2 statement of financial position for held
for collection investment?
a. P1,000,000
b. P923,640.
c. P912,400
d. P901,160

5. On June 1, Year 1 , Fantastic Company purchased as held for collection securities 8,000 of the P1,000 face
value, 8% bonds of Universe Company for P7,383,000. The bonds were purchased to yield 10% interest.
Interest is payable semi-annually on December 1 and June 1. The bonds mature on June 1, Year 5.
On June 1, Year 2, Fantastic sold the bonds for P7,850,000. This amount includes the appropriate accrued
interest. What is the gain or loss on the sale of the bond investment?

6. On July 1, 2020, Super Company purchased P500,000 face value Swans Company 8%
bonds for P455,000 plus accrued interest to yield 10%. The bonds were designated as at fair
value through profit or loss. The bonds mature on January 1, 2024 and pay interest
annually on January 1. On December 31, 2020, the bonds had a fair value of P472,500. On
February 14, 2021, Super Company sold the bonds for P460,000 plus accrued interest.
On its December 31, 2020 statement of financial position, what amount should Super
Company report as debt investments?
a. P455,000
b. P457,750
c. P460,000
d. P472,500

7. Using the same information. What is the interest revenue reported by Super for the year
2020?

a. P18,200
b. P20,000
c. P22,750
d. P25,000

8. Using the same information, What is the gain/loss on the sale of the securities in 2021?
a. P12,500
b. P5,000
c. (P5,000)
d. (P12,500)

INVEST
MENT IN EQUITY SECURITIES

1.Any instrument representing ownership shares and the right to acquire ownership shares is
a. debt security
b. equity securities
c. shareholders’ equity
d. marketable security
2. Equity securities acquired for trading shall be measured at
a. cost, being the purchase price
b. fair value, with change in fair value taken to profit or loss.
c. fair value, with change in fair value taken to other comprehensive income.
d. cost, being the purchase price plus transaction costs.
3. Under which type of investment classification is transaction cost of acquisition taken to profit or loss?
a. Financial assets at fair value through profit or loss.
b. Financial assets at fair value through other comprehensive income.
c. Financial assets at amortized cost.
d. Investment in Associate.
4. Which of the following shall be taken to profit or loss for equity investments measured at fair value through
other comprehensive income?
a. Change in fair value during the reporting period.
b. Gain or loss on disposal of the securities.
c. Dividends received from current year’s earnings of the investee.
d. Impairment in the value of securities.
5. Which of the following statements regarding trading securities are correct?
I. They are held with the intention of being sold in a short period of time.
II. Unrealized holding gains and losses are reported in profit or loss.
III. Transaction costs on initial acquisition are considered in initial measurement of the asset.
IV. Gain on sale is the excess of the net selling price over the cost of the securities sold.
a. I and II
b. I, II, and IV
c. II, III, and IV
d. I, II, and III
6. An investor uses equity method to account for investment in associate. The purchase price implies a fair
value of the investee’s depreciable assets in excess of the investee’s net assets carrying amounts. The investee’s
amortization of the excess
a. decreases the investment account.
b. decreases the goodwill account.
c. increases the investment income account.
d. does not affect the carrying value of the investment.
7. ABC Corporation holds 30% of the ordinary shares of XYZ Company and uses the equity method to account
for this investment. ABC Corporation has no commitments to financially support the operations of XYZ. XYZ
Company has been incurring significant losses in the past years. Under these circumstances, ABC should
a. consistently use the equity method even if the investment account results in a credit balance.
b. discontinue using the equity method when the balance is equal to the original cost of the investment.
c. discontinue using the equity method when the investment account is reduced to zero.
d. recognize a provision equal to the resulting negative balance of the investment to bring the investment
account to zero balance.
8. How should the investment in associate be measured and presented in the consolidated financial statements
and in the financial statements of an investor that does not have a subsidiary?
a. measured in accordance with equity method and included in the line item “Other non-current Financial
Assets”
b. Measured at fair value and included in the line item “Other non-current Financial Asset”
c. Measured in accordance with equity method and presented in a separate line item.
d. Measured at fair value and presented in a separate line item.
9. Hilton, Inc. has equity securities designated as at fair value, through profit or loss that were purchased during
2020. At the end of 2020, the securities had total fair value of P525,000. As of December 31, 2021, the cost and
fair values are as follows:
Investment Cost Fair Value
1 P100,000 P 90,000
2 190,000 210,000
3 250,000 235,000
The gain or loss that would be reported in profit or loss as a result of the valuation of the securities at the end of
2021 is
a. P5,000
b. P10,000
c. P20,000
d. P25,000

10. On January 1, 2020, the Pacita Corporation purchased equity securities to be held for trading purposes for
P2,000,000. The company also paid commission, taxes and other transaction costs amounting to P50,000. The
securities had fair values at December 31, 2020 and 2021, respectively: P1,750,000 and P2,100,000.
No securities were sold during 2021. What amount of unrealized gain or loss should be reported in the 2021
profit or loss section of the statement of comprehensive income?
a. P200,000 loss
b. P250,000 loss
c. P350,000 gain
d. P100,000 gain

12. On January 1, 2020, the Pacita Corporation purchased marketable equity securities for P2,000,000. The
company also paid commission, taxes and other transaction costs amounting to P50,000. Because the
securities were acquired not for immediate trading, Pacita exercised its option to take the change in fair
value through other comprehensive income. The securities had the following fair values at December 31,
2020 and 2021, respectively: P1,750,000 and P2,100,000.
No securities were sold during 2020 and 2021.
What amount of unrealized gain or loss should be reported in December 31, 2021 statement of financial
position as a component of shareholders’ equity?
a. P200,000 cumulative unrealized loss.
b. P2520,000 cumulative unrealized loss.
c. P50,000 cumulative unrealized gain.
d. P100,000 cumulative unrealized gain.
13. Silahis Trading made investments in non-trading equity securities. The cumulative “Holding gain or loss”
account has a debit balance of P12,900 at December 31, Year 1. An analysis of the investments on
December 31, Year 1 showed the following:
No. of shares Cost Fair Value
Asia Textile Ordinary 600 shares P307,500 P270,000
S-Mart, Inc. ordinary 225 shares 76,500 90,000
RJ Company. Ordinary 2,000 shares 269,500 280,600
Total P653,500 P640,600
On July 1, Year 2, the shares of S-Mart were sold for P70,000. The balance of the equity pertaining to these
shares was transferred to the retained earnings account.
On December 31, Year 2, Asia Textile shares were quoted at P440 per share; RJ shares were quoted at P138
per share.
How much is the required debit to other comprehensive income account at the end of Year 2 to bring the
investment account to its correct valuation?
a. P43.500
b. P37,000
c. P30,600
d. P10,600

14. Bayview Company bought 1,000 shares of PLDY shares as equity investments on January 10, Year 2 at P150
per share and paid P2,250 as brokerage fee. The investments are intended to be held for long-term price
change and were designated as at fair value through other comprehensive income.
15. On December 5, Year 1, a P10 dividend per share of PLDT had been declared to be paid on April 30, Year 2
to shareholders of January 31, Year 2. There were no other transactions in Year 2 affecting the investment
in PLDT. At what amount should Bayview record the investment in equity securities at January 10, Year 2?
a. P142,500
b. P150,000
c. P152,250
d. P162,250

16. Holiday, Inc. had the following transactions in the ordinary shares of May Corporation:
January 5 - Bought 4,000 ordinary shares, P100 par, at P88.
June 15 - Received 10& bonus issue.
What is the revised cost per share after receipt of the bonus issue?
a. P75
b. P80
 c. P85
d. P90

17. Shangrilla bought shares of Crossing, Inc. in two batches as follows:

June 10, 2019 2,000 shares at P100 P 200,000
December 5, 2019 3,000 shares at P120 360,000
Total P 560,000
Shangrilla designated the Crossing shares as at Fair Value through Other Comprehensive Income.
The Crossing shares were quoted at P125 on December 31, 2019.
The following were transactions for 2020:
March 10 Received cash dividend at P10 per share.
June 20 Received 20% bonus issue. Shares sell at P120 after the bonus issue.
December 10 Sold 3,000 shares at P120 per share (coming from the December 5, 2019 lot)
The Crossing shares were quoted at 125 at December 31, 2020.
How much is taken to profit or loss as a result of the foregoing events affecting the equity investments for
the year ended December 31, 2020?
a. P0
b. P50,000
c. P170,000
d. P230,000

18. Using the same information, how much is the gain or loss on the sale of the shares?
a. P0
b. P37,500
c. P60,000
d. P80,000

19. Using the same information, how much should Shanrilla report as cumulative other comprehensive income
in the equity section of its statement of financial position at December 31, 2020?
a. P0
b. P100,000
c. P115,000
d. P125,000

20. On December 30, 2020, Aloha Company, an entity with no subsidiary, purchased 10,000 ordinary shares of
Sun Valley Corporation at P150 per share. At the time of the purchase, Sun Valley has an outstanding 50,000
shares with a total share holders’ equity of P7,500,000. For the year 2021, Sun Valley reported profit of
P3,000,000. On December 30, Aloha received a cash dividend of P50 per share.
Based only on the foregoing information, what is the investment carrying value at December 31, 2021?
a. P2,600,000
b. P2,100,000
 c. P1,600,000
d. {1,500,000

21. Tom Company is a subsidiary of Nette Company and its share are not traded in any capital market. Nette
Company produces consolidated financial Statements for the group and complies with the PFRS,
On January 1, 2020, Tom Company acquired 100,000 ordinary shares of Nette Company for P6,000,000. At
the date of purchase, Nette had 500,000 outstanding ordinary shares and shareholders’ equity of
P20,000,000. During the year 2020, Nette reported profit of P1,000,000 and declared and paid cash
dividends of P1.50 per share. The fair value of Nette’s share at December 31, 2020 was P68.

What amount shall Tom Company recognize in profit or loss for the year 2020 if it designated the
investment as at fair value through profit or loss?
a. P150,000
b. P200,000
c. P350,000
d. P950,000

22. On January 1, 2921, IBM Company paid P1,200,000 for 40,000 ordinary shares of Apple Corp., which
represent a 25% investment in the net assets of Apple. IBM has the ability to exercise significant influence
over Apple. IBM received a dividend of P3 per share from Apple in 2021. The reported profit of Apple for
the year ended December 31, 2021 was P640,000.
The balance of IBM’s investment in Apple at December 31, 2021 should be:
a, P1,200,000
b. P1,240,000
c. P1,360,000
d. P1,480,000

23. On April 1, 2020, Village Company purchased 25,000 ordinary shares of Sulo Co. at P180 per share, a price that
approximates book value as of that date. At the time of the purchase, Sulo had 100,000 ordinary shares
outstanding. Village had no ownership interest in Sulo before the purchase. The first quarter statement ending
March 31, 2020 of Sulo recorded earnings of P480,000. For the year ended December 31, 2020, Sulo reported a
profit of P2,400,000. Sulo paid Village dividends of P60,000 on June 1 and again P60,000 on December 31, 2020.
During 2021, Sulo reported profit of P2,000,000 and paid dividends of P2,000,00 to its shareholders. On January
1, 2022, Village sold 10,000 ordinary shares of Sulo for p200 per share.
For the year ended December 31, 2022, the reported profit of Sulo was P2,500,000 and dividends of P60,000 were
paid to Village. The market value of Sulo shares remained unchanged during the year 2022.
The carrying value of Village Company’s investment in Sulo on December 31, 2020 was
a. P4,860,000
b. P4,980,000
c. P4,500,000
d. P3,900,000
 24. Using the same information, the carrying value of Village Company’s investment in Sulo on December 31, 2022?
a. P3,000,000
b. P2,988,000
c. P2,961,000
d. P2,916,000

25. Using the same information, the gain of Village Company on the sale of 10,000 ordinary shares of Sulo was
a. P200,000
b. P56,000
c. P8,000
d. P0.

26. On January 1, 2021, Admiral Company purchased 10,000 ordinary shares of LTS Corporation, a large, publicly
traded company , listed on a major stock exchange. In December, LTS distributed a 20% bonus issue when the par
value was P100 per share and the market value was p500 per share. How much income should Admiral Company
report in 2021?
a. P0
b. P200,000
c. P1,000,000
d. P4,000,000

INVENTORIES
1. Which of the following would be reported as inventory?
I. Land acquired for resale by a real estate firm.
II. Agricultural produce held by a farm.
III. Partially completed goods held by a manufacturing company.
IV. Machinery acquired by a manufacturing company for use in the production process.
a. I, II, III, IV
b. I, II, and IV
c. II, III, and IV
d. II and III
2. Goods on consignment should be included in the inventory of
a. the consignor
b. the consignee
c. both the consignor and the consignee.
d. neither the consignor nor the consignee
3. Which of the following shall be included in the cost of inventory?
a. selling costs.
b. Freight charges on goods acquired FOB destination.
c. Abnormal amounts of wasted materials, labor, or other production costs.
d. Storage costs that are necessary to further the production process.
4. Inventories encompass
I. merchandise purchased by a retailer and held for resale.
II. land and other property held for resale by real estate developer.
III. finished goods prodeuced.
IV. abnormal amounts of wasted materials, labor and other production costs.
a. I, II, III, and IV
b. I, II, and III.
c. I and III
d. I only
5. Under the shipping terms, the buyer pays for the freight, which legally must be borne by the seller.
a. FOB shipping point, freight prepaid.
b. FOB shipping point, freight collect.
c. FOB destination, freight prepaid
d. FOB destination, freight collect.
6. When using the periodic inventory method, which of the following generally would not be separately accounted for
in the computation of cost of goods sold?
a. trade discounts applicable to purchases during the period.
b. cash (purchase) discounts taken during the period.
c. purchase returns and allowances of merchandise during the period.
d. cost of transportation-in for merchandise purchases during the period.
7. How should the following costs affect a retailer’s inventory.
Freight –In Interest on inventory loan
a. Increase no effect
b. Increase increase
c. No effect increase
d. No effect no effect
8. Which of the following inventory costing methods reports most closely the current cost of inventory on the
statement of financial position?
a. specific identification
b. weighted average
c. First-in-First-out
d. Last-in-Last-out
9. Which costing method is appropriate for inventories that are segregated for a specific project and inventories that
are not ordinarily interchangeable?
a. moving average
b. weighted average
c. specific identification
d. standard cost
10.During the period of rising prices, when the FIFO inventory cost flow method is used, a perpetual inventory system
would
a. result in the same ending inventory as a periodic inventory system.
b. not be permitted.
c. result in higher ending inventory than a periodic inventory system.
d. result in a lower ending inventory than a periodic inventory system.
11. Which of the following statements are true regarding perpetual inventory method?
I. Purchases are recorded as debit to inventory account.
II. The entry to record a sale includes a debit to cost of goods sold and a credit to inventory.
III. After a physical inventory count, inventory is credited for any missing inventory.
IV. Purchase returns are recorded by debiting accounts payable and crediting purchase returns and allowances.
a. I only
b. I, II, and III
c. I and II only
d. II and III only
12. In a period ofrising prices, the inventory cost formula that tends to result in the highest reported profit is
a. last-in-last-out
b. specific identification
c. first-in-first-out
d. moving average
13. When using the moving average method of inventory valuation, a new average unit cost must be computed after
each
a. month end.
b. purchase
c. purchase and issuance from inventory
d. issuance from inventory
14. In periodic inventory system that uses the weighted average cost flow method, the beginning inventory is
a. total goods available for sale minus the cost of goods sold.
b. net purchases minus the ending inventory.
c. net purchases minus the cost of goods sold.
d. total goods available for sale minus the net purchases
15. Under the net method of recording purchases, the purchase discounts not taken are
a. reported as finance costs.
b. ignored
c. treated as additional cost of inventory.
d. absorbed by cost of goods sold.
16. The retail inventory method would include which of the following in the calculation of the goods available for sale at
both cost and retail
a. sales returns.
b. purchase returns
c. markdowns
d. markups
17. Which of the following relating to inventories shall be disclosed in the entity’s financial statements?
I. Cost formula uses.
II. Volume of inventories purchased during the period.
III. Amount of inventories recognized as expense during the period.
IV. Amount of reversal of write-down of inventories.
V. Amount of inventories pledged as loan security.
a. I, III, IV, and V
b. I, II, III, IV, and V
c. II, III, Iv and V
d. I, II, III and IV
18. The average retail method is based on the assumption that the
a. gross margin percentage applicable to ending inventory and to the goods sold during the period is the same.
b. ration of gross margin to sales is approximately the same each period.
c. ratio of cost to retail changes at a constant rate.
d. beginning inventory and the cost of goods sold contain the same proportion of hi-cost and low-cost ratio goods.
19. Which statement is accurate about calculating the cost ratio to be used under the average retain inventory method?
a. The beginning inventory is excluded and markdowns are not deducted.
b. The beginning inventory is included and markdowns are deducted.
c. The beginning inventory is included and markdowns are not deducted.
d. The beginning inventory is excluded and markdowns are deducted.
20.During 2019, the Mitt Co. signed a non-cancelable contract to purchase 2,000 units of a raw material at P32 per
pound. On December 31, 2019, the market price of the raw material is P26 per unit, and the selling price of the finished
product is expected to decline accordingly.
The financial statements prepared for 2019 should report
a. An appropriation of retained earnings P12,000.
b. A loss of P12,000 in the statement of comprehensive income.
c. A note describing the expected loss on the purchase commitment.
 d. Nothing regarding this matter.

20. Celine Company purchased an item of merchandise quoted and listed at P150,0000 under the following terms:
trade discounts of 15%, 10%, 5%; 2/10,n/30. What is the invoice price of the merchandise?
a. P100,900.00
b. P105,000.00
c. P106,832.25
d. P109,012.50
Invoice price (150,000 x .85 x .90 x .95) P109,012.50

21. Using the same information, how much was the cash payment if payment was made within the discount period.
a. P106,832.25
b. P104,693.50
c. P102,900.00
d. P100,842.00

22.Rick’s Distributors, a computer store in Vira Mall, specializes in the sale of IBM compatibles and software packages
and had the following transactions with one of its suppliers.
Purchases of IBM compatibles P3,280,000
Purchases of commercial software package 900,000
Returns and allowances 80,000
Purchase discounts taken 27,000
Purchases were made throughout the year on terms 3/11,n/30. All returns and allowances took place within 5 days of
purchase and prior to any payment of account.
How much were the discounts lost:?
a. P96,000
b. P98,400
c. P71,400
d. P69,000

22. Recee Company’s inventory at December 31, 2020 was P1,500,000 based on a physical count of goods priced at
cost, and before any necessary year-end adjustment relating to the following:
 Included in the physical count were goods billed to a customer F.O.B shipping point on December 31, 2020.
These good had a cost of P30,000 and were picked up by the carrier on January 10, 2021.
 Goods shipped F.O..B, shipping point on December 28, 2020, from a vendor to Recee were received on
January 4, 2021. The invoice cost was P50,000
What amount should Recee Company report as inventory on its December 31, 2020 statement of financial
position?
a. P1,550,000
b. P1,470,000
c. P1,480,000
d. P1,520,000
23. The inventory on hand on December 31, 2020 for LM Corporation is valued at a cost of P3,000,000. The following
items were not included in the inventory:
a. Goods purchased in transit shipped FOB destination, with a price of P300,000, which includes freight charge of
P30,000.
b. Goods sold in transit FOB destination with invoice price of P490,000 which includes freight charge of P40,000 to
deliver the goods.
c. Goods held on consignment by LM at a sales price of P100,000, excluding a 20% commission on the sales price.
Freight paid by LM, P10,000.
d. Goods purchased in transit FOB shipping point with invoice of P600,000. Freight cost amount to P60,000.
e. Goods out of consignment with sales price of P300,000 shipping cost amounts to P30,000
The company sells goods at 150% of cost.
What is the correct inventory on December 31, 2019?
a. P4,400,000
b. P4,160,000
c. P4,190,000
d. P4,100,000

24. The Elegance Manufacturing Company, in its statement of financial position as of December 31, 2019, has an
inventory of P1,760,000 which consists of:
Direct materials P550,000
Direct materials purchases in transit, FOB destination, 120,000
Direct materials purchases in transit, FOB shipping point 90,000
Prepaid insurance on inventory 20,000
Work in process 380,000
Finished goods 450,000
Goods shipped on consignment, at selling price with 20%
Profit on sales 150,000
What is the cost of inventory to be shown in the statement of financial position of Elegance as of December 31,
2019?
a. P1,590,000
b. P1,625,000
c. P1,595,000
d. P1,500,000

25. The inventory account of Nile Trading at December 31, 2019 included the following items:
Goods purchased in transit, FOB shipping point P130,000
Merchandise out on consignment at sales price
(including markup of 30% on cost) 104,000
Goods held on consignment 56,000
Goods out on approval, at sales price (cost, P25,000) 32,500
 Based on the above information, the inventory account at December 31, 2019 should be reduced by
a. P81,500
b. P84,500
c. P91,600
d. P87,500

26. On December 31, 2020, Greenland Corporation lost all of warehouse inventory by fire. Data for years 2018, 2019,
and 2020 follow:
2019 2018 2017
Inventory, January 1, P 520,000 P705,000 P425,000
Net purchases 2,180,000 1,365,000 1,320,000
Net sales 2,500,000 2,000,000 1,700,000
Goods with selling price of P150,000 were sent on consignment to Atlas Trading. As of December 31, 2020, these goods
are unsold and still in the possession of Atlas Trading.
On December 28, 2020, goods costing P95,000 were purchased by Greenland, terms FOB shipping point. The goods are
still in transit but were properly recorded by Greenland as purchases during 2020. What is the cost of the inventory lost
by fire?
a. P750,000
b. P705,000
c. P845,000
d. P950,000

27. On September 30, 2020, a flash flood damaged the warehouse and factory of Wintermart, Inc. completely
destroying its work-in process inventory. There was no damage to either raw materials or finished goods since
these were stored in an elevated section of the warehouse.
A physical inventory taken immediately after the flood subsided showed the following: Raw materials – P740,000;
Finished goods – P1,310,000.
Inventories at January 1, 2020 consisted of the following: Raw materials – P400,000; Work-in process – P1,100,000;
Finished Goods – P1,500,000.
The company’s profit margin for the last several years is 25%. Sales for the first nine months of 2020 were
P4,000,000. Raw materials purchases were P1,280,000. Direct labor cost for the period amounted to P960,000.
Manufacturing overhead is applied at 50% of direct labor cost.
What is the value of the work –in process inventory lost from flood at September 30, 2020?
a. P580,000
b. P670,000
c. P640,000
d. P720,000
28. Winston Company uses the average retail method of inventory valuation. Following are the information available:
Cost Retail
Beginning inventory P23,000 P60,000
Purchases 120,000 220,000
Net markups 20,000
Net markdowns 40,000
Sales Revenue 180,000
What is the estimated cost of ending inventory?
a. P80,000
b. P44,000
c. P38,133
d. P48,000

PROPERTY, PLANT AND EQUIPMENT

1. Which of the following are essential characteristics of property , plant and equipment?
I. Estimated useful life is beyond 12 months.
ii. Held for use in the production or supply of goods and services, for rental to others, or for administrative
purposes.
III. Physical existence.
IV. Intended for sale in the ordinary course of business
a. I, II, III and IV
b. I, II, and III
c. I, II, and IV
d. I, III and IV
2. Which of the following shall be classified as inventory rather than as property, plant and equipment?
a. Building under construction.
b. Land acquired by a real estate firm and put on the market for resale.
c. Equipment that is temporarily idle.
d. Delivery truck acquired on installment, certificate of ownership being held by the finance company.
3. Under the Philippine Interpretations Committee Q and A 2012-02, an entity that purchased land and subsequently
demolished a building on it shall treat the demolition costs as
a. a capitalized cost that shall be amortized over the estimated time period between the tearing down of the building
and the completion of the plant.
b. expense when incurred.
c. an addition to the cost of the plant.
d. an addition to the cost of the land.
4. Diwa, Inc. purchased certain plant assets under a deferred payment contract. The agreement was to pay P600,000
per year for three year. The plant assets should be initially recognized at
a. P600,000
b. P600,000 plus imputed interest, based on the company’s incremental borrowing rate.
c. Present value of P600,000 annuity for three years at an imputed interest rate.
d. simple present value of P600,000 for three years at an imputed interest rate.