CPA REVIEW SCHOOL OF THE PHILIPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING JULY 2021
FIRST PREBOARD EXAMINATION
SITUATION 1 – Three unrelated entities
White Company provided the following information on December 31, 2021.
Cash in bank, net of bank overdraft of P500,000 in another bank 5,000,000
Notes receivable, net of discounted note of P500,000 4,000,000
Accounts receivable, net customers’ accounts with credit balances P1,500,000 6,000,000
Inventory, excluding unrecorded purchases on account P300,000 in transit FOB
shipping point on December 31, 2021 3,000,000
Bond sinking fund set aside for bond payable due December 31, 2022 3,000,000
Accounts payable, net of supplier’s accounts with debit balances of P1,000,000 7,000,000
Note payable due December 31, 2023 4,000,000
Bond payable due December 31, 2022 3,000,000
Claims from wages covered in a pending lawsuit 400,000
Estimated expenses in redeeming prize coupons 600,000
Accrued expenses 2,000,000
Blue Company reported the following information for the year ended December 31, 2021.
Sales 7,750,000
Cost of goods sold 2,400,000
Administrative expenses 700,000
Loss on sale of equipment 100,000
Sales commissions 500,000
Interest revenue 450,000
Freight out 150,000
Loss on early extinguishment of long-term debt 200,000
Doubtful accounts expense 150,000
At year-end, Blue Company committed to a plan to discontinue the operations of Underwear Division.
Blue Company estimated that the division’s operating loss for 2022 would be P500,000. The fair value
of the facilities of the division was P200,000 less than carrying amount on December 31, 2021. The
division’s operating loss for 2021 was P1,400,000 and the division was actually sold for P300,000 less
than carrying amount in 2022. The income tax rate is 25%.
Red Company reported operating expenses other than interest expense for the year at 40% of cost of
goods sold but only 20% of sales. Interest expense is 5% of sales. The amount of purchases in 120% cost
of goods sold. Ending inventory is twice as much as the beginning inventory. The net income for the
year was P3,000,000. The income tax rate is 25%.
1. What amount should White Company report as total current assets on December 31, 2021?
a. 21,300,000
b. 24,800,000
c. 24,000,000
d. 24,300,000
2. What amount should White Company report as total current liabilities on December 31, 2021?
a. 12,600,000
b. 15,900,000
c. 16,000,000
d. 12,900,000
3. What amount should Blue Company report as net income for 2021?
a. 3,000,000
b. 1,800,000
c. 1,425,000
d. 1,575,000
4. What amount should Red Company report as sales for the year?
a. 12,000,000
b. 20,000,000
c. 19,200,000
d. 16,000,000
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SITUATION 2 – Four different entities

Green Company reported the following liabilities on December 31, 2021.
Accounts payable 2,000,000
Short-term borrowings 1,500,000
Bonds payable due December 31, 2022 3,000,000
Premium on bonds payable 500,000
Mortgage payable, current portion P500,000 3,500,000
Bank loan, due June 30, 2022 1,000,000
The P1,000,000 bank loan was refinanced with a 5-year loan on March 1, 2022. The financial statements
were issued March 31, 2022.
Orange Company is completing the preparation of the financial statements for 2021. The financial
statements are authorized for issue on March 31, 2022. On March 5, 2022, a dividend of P3,000,000 was
declared and a contractual profit share payment of P1,000,000 was made based on the net income for
2021. On February 1, 2022, a customer went into liquidation having owed the entity P500,000. No
allowance had been made against this account. On March 20, 2022, a manufacturing plant was destroyed
by fire resulting in a financial loss of P2,500,000.
Parent Company acquired 100% of Subsidiary Company prior to 2021. During 2021, the individual
entities included in their financial statements the following:
Parent Subsidiary
Key officers’ salaries 750,000 500,000
Officers’ expenses 250,000 100,000
Loans to officers 1,250,000 500,000
Intercompany sales 1,500,000 0
Mont Company reported net assets totaling P8,750,000 at year-end which included the following:
Treasury shares of Mont Company at cost 250,000
Idle machinery 100,000
Trademark 150,000
Allowance for inventory writedown 200,000
5. What total amount should Green Company report as current liabilities on December 31, 2021?

a. 7,500,000
b. 5,000,000
c. 8,500,000
d. 4,000,000
6. What amount should Orange Company recognize in profit and loss for 2021 to reflect adjusting
events after the end of reporting period?
a. 4,000,000
b. 3,000,000
c. 2,500,000
d. 1,500,000
7. What total amount should Parent Company report as related party disclosures in the notes to the 2021
consolidated financial statements?
a. 4,500,000
b. 1,250,000
c. 1,750,000
\
d. 3,000,000
8. What amount should Mont Company report as net assets at year-end?
a. 8,500,000
b. 8,400,000
c. 8,300,000
d. 8,200,000

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SITUATION 3 – Five different entities

On July 1, 2021, Whisky Company had an equipment with cost of P5,000,000 and accumulated
depreciation of P3,000,000. On that date, the entity classified the equipment as held for sale. On same
date, the equipment had an estimated selling price of P1,300,000, estimated selling cost of P100,000 and
remaining life of 4 years. On December 31, 2021, the estimated selling price of the equipment had
increased to P1,500,000 with estimated selling cost of P50,000.
Brandy Company purchased equipment for P5,000,000 on January 1, 2019 with a useful life of 10 years
and no residual value. On December 31, 2020, the entity classified the equipment as held for sale. The
fair value of the equipment on December 31, 2020 was P3,300,000 and the cost of disposal P100,000.
On December 31, 2021, the fair value of the equipment was P3,800,000 and the cost of disposal
P200,000. On December 31, 2021, the entity believed that the criteria for classification as held for sale
can no longer be met. Accordingly, the entity decided not to sell the asset but to continue to use it.
Spider Company owned a machine that was bought on January 1, 2021 for P3,760,000. The machine
was estimated to have a useful life of five years and a residual value of P240,000. The entity used the
sum of years’ digits method of depreciation. On January 1, 2024, the entity determined that the total
useful life of the machine should have been four years and the residual value is P352,000.
During 2021, Remy Company discovered that depreciation for 2020 was overstated P300,000. A
litigation settlement in 2021 resulted in a loss of P300,000. The inventory on December 31, 2019 was
overstated by P200,000. The entity disposed of a recreational division in 2021 at a loss of P600,000. The
income tax rate is 25%.
During the current year, Jade Company reported total revenue of operating segments at P60,000,000.
Included in this total revenue was sales revenue to external customers amounting to P20,000,000.
9. What amount should Whisky Company report as gain on reversal of impairment in 2021?
a. 800,000
b. 250,000
c. 200,000
d. 300,000
10. What amount should Brandy Company recognize as gain on reclassification in 2021?
a. 800,000
b. 300,000
c. 400,000
d. 0
11. What amount should Spider Company record as depreciation for 2024?
a. 192,000
b. 444,000
c. 592,000
d. 704,000
12. What was the effect of the events on Remy Company’s net income for 2021?
a. 675,000 decrease
b. 900,000 decrease
c. 225,000 increase
d. 300,000 increase
13. What minimum amount of external revenue should Jade Company report for reportable segments?
a. 20,000,000
b. 15,000,000
c. 30,000,000
d. 45,000,000

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SITUATION 4 - Four independent entities

Gray Company had the following account balances on December 31, 2021.
Petty cash fund 50,000
Cash in bank – current account 4,000,000
Cash in bank – set aside for bond payable due December 31, 2022 2,000,000
Cash on hand 500,000
Treasury bills 1,000,000
The petty cash fund included unreplenished December 2021 petty cash expense vouchers P5,000 and
employee IOU P5,000. The cash on hand included a P100,000 customer check dated January 15, 2022.
In exchange for a guaranteed line of credit, the entity has agreed to maintain a minimum balance of
P200,000 in the unrestricted current bank account.
On December 31, 2021 Velvet Company reported accounts receivable of P6,000,000 and allowance for
doubtful accounts of P1,000,000 on January 1, 2021.
Net credit sales Writeoffs Recoveries
2018 9,000,000 400,000 30,000
2019 13,000,000 600,000 70,000
2020 15,000,000 700,000 120,000
2021 20,000,000 650,000 150,000
Doubtful accounts are provided for as percentage of net credit sales. The percentage is computed
annually by using the data of the three years prior to the current year.
Beige Company used the net price method of accounting for cash discounts. In one of its transactions on
December 26, 2021, the entity sold merchandise with a list price of P1,000,000 to a client who was given
a trade discount of 20%, 10% and 5%. Credit terms were 4/10, n/30. The goods were shipped FOB
destination, freight collect. Total freight charge paid by the client was P25,000. On December 27, 2021,
the client returned damaged goods originally billed at P100,000.\

On January 1, 2021, Yellow Company sold equipment with a carrying amount of P4,800,000 in exchange
for P6,000,000 noninterest bearing note due January 1, 2024. There was no established exchange price
for the equipment. The prevailing interest rate for this note was 10%. The present value of 1 at 10% for
three periods is 0.75.
14. What total amount should Gray Company report as cash and cash equivalents on December 31,
2021?
a. 6,440,000

b. 7,440,000
c. 7,540,000
d. 5,440,000
15. What amount should Velvet Company report as allowance for doubtful accounts on December 31,
2021?
a. 1,300,000
b. 1,950,000
c. 1,150,000
d. 1,800,000
16. What amount should Beige Company report as net realizable value of the accounts receivable on
December 31, 2021?
a. 559,000
b. 584,000
c. 535,640
d. 560,640
17. What amount should Yellow Company report as gain or loss on sale of equipment in 2021?
a. 1,200,000 gain
b. 2,700,000 gain
c. 300,000 gain
d. 300,000 loss

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SITUATION 5 – Four dependent entities

Cynthia Company factored P750,000 of accounts receivable at year-end. Control was surrendered. The
factor accepted the accounts receivable subject to recourse for nonpayment. The fair value of the recourse
obligation is P15,000. The factor assessed a fee of 2% and retained a holdback equal to 4% of the
accounts receivable. In addition, the factor charged 12% interest computed on a weighted-average time
to maturity of fifty-one days.
Kew Company reported accounts payable of P2,200,000 before considering the following data:
• Goods shipped to Kew F.O.B. shipping point on December 22, 2021, were lost in transit. The
invoice cost P100,000 was not recorded by Kew. On January 2, 2022, Kew filed a P100,000 claim
against common carrier.
• On December 27, 2021, a vendor authorized Kew to return, for full credit, goods shipped and billed
at P50,000 on December 28, 2021. A P50,000 credit memo was received and recorded by Kew on
January 5, 2022.
• On December 31, 2021, Kew has a P500,000 debit balance in accounts payable to Ross, a supplier,
resulting from a P500,000 advance payment for goods to be manufactured.
Colombia Company reported the December 31, 2021 inventory at P2,500,000. The entity revealed the
following transactions:
• Goods shipped to the entity FOB destination on December 26, 2021 were received on January 2,
2022. The invoice cost of P300,000 is included in the preliminary inventory balance.
• On December 29, 2021, merchandise costing P100,000 was shipped to a customer FOB shipping
point and arrived at the customer location on January 3, 2022. The merchandise is not included in
the preliminary inventory balance.
• On December 31, 2021, the entity had merchandise costing P150,000 out on consignment with
another entity. The merchandise is not included in the preliminary inventory balance.
On December 31, 2021, Mexico Company received two P2,000,000 notes receivable from customers.
On both notes, interest is calculated on the outstanding principal balance at the annual rate of 3% and
payable at maturity. The first note, made under customary trade terms, is due in nine months and the
second note is due in five years. The market interest rate on December 31, 2021 was 8%. The PV of 1 at
8% due in nine months is .944, and the PV of 1 at 8% due in 5 years is .68.
18. What amount should Cynthia Company initially record as cost of factoring the accounts receivable?
a. 12,575
b. 15,000
c. 27,575
d. 42,575
19. What amount should Kew Company report as accounts payable on December 31, 2021?
a. 2,750,000
b. 2,650,000
c. 2,800,000
d. 2,250,000
20. What amount should Colombia Company report as inventory on December 31, 2021?
a. 2,350,000
b. 2,200,000
c. 2,450,000
d. 2,650,000
21. What total carrying amount should Mexico Company report for the notes receivable?
a. 3,564,000
b. 4,000,000
c. 3,360,000
d. 4,300,000

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SITUATION 6 – Four independent entities

At year-end, Belarus Company reported that a fire caused severe damage to the entire inventory. The
entity had a gross profit of 30% on cost. A physical inventory disclosed usable damaged goods which
can be sold for P100,000. The entity provided the following data for the current year:
Inventory January 1 1,100,000
Net purchases 6,000,000
Net sales 7,280,000
London Company used the average cost retail inventory method. The entity provided the following
information for the current year:
Cost Retail
Beginning inventory 1,500,000 2,200,000
Net purchases 3,875,000 4,950,000
Departmental transfer-credit 200,000 300,000
Net markup 150,000
Inventory shortage at sales price 100,000
Employee discounts 200,000
Sales, including sales of P400,000 of items marked down from P500,000 4,000,000
Based on physical inventory taken at year-end, Chewy Company determined the chocolate inventory on
a FIFO basis at P5,800,000 with a replacement cost of P4,000,000. The entity estimated that after further
processing costs of P2,500,000, the chocolate could be sold as finished candy bars for P8,000,000. The
normal profit margin is 10% of sales.
Downtown Company used the perpetual method to record inventory transactions for the current year.
Inventory 2,200,000
Sales 6,500,000
Sales return 100,000
Cost of goods sold 4,600,000
Inventory losses 200,000
In the latter part of the year, the entity recorded a P500,000 credit sale of goods costing P300,000. These
goods were sold on FOB destination terms and were in transit at year-end. The goods were included in
the physical count. The inventory at year-end determined by physical count had a cost of P2,500,000
and a net realizable value of P1,800,000. Any inventory writedown is not yet recorded.
22. What amount should Belarus Company report as fire loss?
\

a. 1,500,000
b. 1,400,000
c. 2,004,000
d. 1,964,000
23. What amount should London Company report as cost of ending inventory?
a. 1,950,000
b. 2,600,000
c. 1,924,000
d. 2,250,000
24. What amount should Chewy Company as chocolate inventory at year-end?
a. 5,500,000
b. 4,000,000
c. 5,800,000
d. 4,700,000
25. What amount should Downtown Company report as cost of goods sold for the current year?
a. 5,000,000
b. 5,500,000
c. 4,300,000
d. 5,200,000

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SITUATION 7 – Four independent entities

Salve Company is engaged in raising dairy livestock. The entity provided the following information
during the current year:
Carrying amount on January 1 6,000,000
Increase due to purchases 2,000,000
Gain arising from change in fair value less cost of disposal due to price change 1,000,000
Gain arising from change in fair value less cost of disposal due to physical change 500,000
Decrease due to sales 900,000
Decrease due to harvest 400,000
At the beginning of current year, Carmela Company acquired nontrading equity instrument for
P4,000,000. The equity instrument is irrevocably designated as financial asset at fair value through
other comprehensive income. The transaction cost incurred amounted to P700,000. The fair value of
the instrument was P5,500,000 at year-end and the transaction cost that would be incurred on the sale of
the investment is estimated at P600,000.
Harem Company held 30,000 shares of King Company’s 100,000 outstanding shares and 60,000 shares
of Queen Company’s 400,000 outstanding shares. During the year, the entity received P300,000 cash
dividend from King Company and 5% share dividend from Queen Company. The closing price of Queen
share is P150. The entity also received 6,000 shares of Queen Company in lieu of cash dividend of P20
per share.
The entity owned 300,000 preference shares of Princess Company’s 1,000,000 P50 par 10% cumulative,
nonparticipating preference shares and 200,000 ordinary shares representing 5% interest. During the
current year, Princess Company declared and paid preference dividends of P8,000,000. No dividends
had been declared or paid during the previous year.
Adam Company owned 50,000 ordinary shares of Bland Company. These 50,000 shares were purchased
by Adam for P120 per share. On August 30, Bland distributed 50,000 stock rights to Adam. Adam was
entitled to buy one share of Bland Company for P90 cash and two of these rights. On August 30, each
share had a market value of P130 and each right had a market value of P20.
26. What amount should Salve Company report as biological asset on December 31?
a. 8,200,000
b. 9,500,000
c. 8,000,000
d. 9,100,000
27. What amount of gain should Carmela Company recognize in other comprehensive income for the
current year?
a. 200,000
b. 900,000
c. 800,000
d. 0
28. What total amount of dividend income should Harem Company report for the current year?
a. 3,600,000
b. 3,750,000
c. 2,400,000
d. 3,300,000
29. What total cost should Adam Company record 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

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SITUATION 8 – Four independent entities

On July 1, 2021, Alta Company purchased for P1,500,000, 20,000 shares of another entity’s newly issued
6% cumulative P20 par value preference shares. Each preference share had one stock warrant attached
which entitled the holder to acquire at P25 one ordinary share of the other entity’s P10 par value ordinary
shares for each two warrants held. The market price on this date of the preference share without warrant
was P50 and the market price of the stock warrant was P10. On September 1, 2021, all stock warrants
were sold for P600,000.
At the beginning of current year, Interlude Company acquired a 30% interest in an investee at a cost of
P3,200,000. The equity of the investee on the date of acquisition was P6,000,000, consisting of
P4,000,000 share capital and P2,000,000 retained earnings. All the identifiable assets and liabilities of
the investee were recorded at fair value except for an equipment with a fair value of P3,000,000 greater
than carrying amount. The remaining useful life of the equipment is 5 years. At year-end, Interlude
Company had inventory costing P2,000,000 on hand which had been purchased from the investee. A
profit of P600,000 had been made on the sale. During the current year, the investee reported net income
of P4,000,000 and paid dividend of P1,500,000. At year-end, land was revalued resulting to a revaluation
surplus of P2,000,000. The equity of the investee at year-end showed share capital P4,000,000, retained
earnings P3,500,000, retained earnings appropriated P1,000,000 and revaluation surplus P2,000,000.
On July 1, 2021, Pell Company purchased Green Company ten-year 8% bonds with face amount of
P5,000,000 for P4,200,000. The bonds mature on June 30, 2031 and pay interest semiannually on June
30 and December 31. Using the interest method, Pell Company recorded bond discount amortization of
P18,000 for the six months ended December 31, 2021.
On January 1, 2021, Michelle Company purchased bonds with face amount of P5,000,000. The entity
paid P4,600,000 plus transaction cost of P142,000. The bonds mature on December 31, 2023 and pay
6% interest annually on December 31 of each year with 8% effective yield. The bonds are quoted at 105
on December 31, 2021. The business model in managing the financial asset is to collect contractual cash
flows that are solely payments of principal and interest and also to sell the bonds in the open market.
30. What amount should Alta Company recognize as gain on sale of stock warrants?
a. 600,000
b. 250,000
c. 350,000
d. 0
31. What amount should Interlude Company report as investment income for the current year?
a. 1,200,000
b. 1,020,000
c. 840,000
d. 750,000
32. What carrying amount of the investment in associate should Interlude Company report at year-end?
a. 3,200,000
b. 4,370,000
c. 4,190,000
d. 3,590,000
33. What amount should Pell Company record as interest income for 2021?
a. 418,000
b. 182,000
c. 200,000
d. 218,000
34. What amount of unrealized gain should Michelle Company report as component of other
comprehensive income for 2021?
a. 250,000
b. 400,000
c. 428,640
d. 0

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SITUATION 9 – Three independent entities

Janina Company regularly hedges purchase requirements and the sale of finished products in the futures
market. On December 1, 2021, the entity entered into the following three contracts designated as cash
flow hedge to be settled on January 1, 2022.
Futures price Market price
Type of contract Quantity 12/1/2021 12/31/2021
Purchase sugar 20,000 60 75
Purchase milk 50,000 100 91
Sell ice cream 30,000 220 195
Andi Company incurred the following expenditures related to land and building.
Cash paid for land and dilapidated building 3,000,000
Removal of old building to make room for construction of new building 200,000
Payment to tenants for vacating old building 150,000
Architect fee for new building 200,000
Building permit for new construction 50,000
Fee for title search 50,000
New building constructed 7,000,000
Assessment by city for drainage project 100,000
Cost of grading, leveling and landfill 250,000
Driveway and walk to new building from street as part of building plan 400,000
Temporary quarters for construction crew 200,000
Temporary building to house tools and materials 150,000
Cost of changes during construction to make new building more energy efficient 350,000
Cost of windows broken by vandals 100,000
During the current year, Anton Company reported the following transactions:
• A piece of land was acquired for P1,600,000. To be able to acquire the land, P175,000 was paid to a
real estate agent and P50,000 was incurred to clear the land. During the course of clearing the land,
timber and gravel were recovered and sold for P25,000.
• A second piece of land with a building was acquired for P4,500,000. An independent appraiser
valued the land at P2,000,000 and the building at P1,000,000. Shortly after acquisition, the building
was demolished at a cost of P100,000. A new building was constructed at a cost of P5,000,000 plus
excavation fee P50,000, architect fee P80,000 and building permit P70,000.
• A third piece of land was acquired for P2,000,000 and was held for undetermined use.
35. What amount should Janina Company report as derivative asset or liability on December 31, 2021?
a. 300,000 asset
b. 600,000 asset
c. 1,500,000 liability
d. 1,050,000 liability
36. What amount should Andi Company capitalize as cost of the land?
a. 3,400,000
b. 3,300,000
c. 3,150,000
d. 3,030,000
37. What amount should Andi Company capitalize as cost of the building?
a. 8,700,000
b. 8,800,000
c. 8,500,000
d. 8,300,000
38. What amount should Anton Company report as cost of land under property, plant and equipment?
a. 5,300,000
b. 4,800,000
c. 6,800,000
d 5,800,000

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SITUATION 10 – Four unrelated entities

Wisdom Company installed a new equipment at the production facility and incurred the following costs:
Cost of equipment per supplier’s invoice 2,500,000
Initial delivery and handling cost 200,000
Cost of site preparation 600,000
Consultations used for advice on the acquisition of equipment 700,000
Interest charges paid to supplier for deferred credit 200,000
Estimated dismantling cost to be incurred as required by contract 300,000
Operating losses before commercial production 400,000
Nia Company commenced construction of a plant on February 1, 2021. The construction was completed
on October 31, 2021. The cost of the plant P40,000,000 was paid in full to the contractor and was funded
from general borrowings. The borrowings during 2021 comprised the following:
United Bank – 6% 10,000,000
Global Bank – 8% 15,000,000
Asian Bank – 10% 25,000,000
Zoe Company had the following loans outstanding in 2021:
Specific construction loan – 8% 5,000,000
General purpose loan - 10% 20,000,000
The entity began the construction of a building on January 1, 2021 and the building was completed on
December 31, 2021. The expenditures during 2021 were January 1 P3,000,000, July 1 P6,000,000 and
November 1 P9,000,000.
Xavier Company purchased a machinery on January 1, 2021 for P7,200,000. The machinery had useful
life of 10 years with no residual value and was depreciated using the straight line method. In 2024, a
decision was made to change the depreciation method from straight line to sum of years’ digits method.
The useful life and residual value remained unchanged.

39. What total amount should Wisdom Company capitalize as cost of the equipment?
a. 4,300,000
b. 3,600,000
c. 4,200,000
d. 4,500,000
40. What amount should Nia Company capitalize as interest in 2021?
a. 2,580,000
b. 3,440,000
c. 4,300,000
d. 3,225,000
41. What amount should Nia Company report as interest expense in 2021?
a. 1,720,000
b. 1,505,000
c. 3,225,000
d. 1,675,000
42. What amount should Zoe Company report as cost of building on December 31, 2021?
a. 18,000,000
b. 18,400,000
c. 18,650,000
d. 18,750,000
43. What amount should Xavier Company record as depreciation for 2024?
a. 1,260,000
b. 1,440,000
c. 916,360
d. 720,000

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SITUATION 11 – Four unrelated entities

Surigao Company operates a copper mine in central Mindanao. The entity paid P5,000,000 in 2021 for
the mining site and spent an additional P3,000,000 to prepare the mine for extraction of the copper. After
the copper is extracted in approximately four years, the entity is required to restore the land to its original
condition and the land can be sold for P1,000,000. The cash outflow possibility for the restoration cost
is P2,000,000. The credit adjusted risk-free rate of interest is 10%. The PV of 1 at 10% for 4 periods is
0.68. To aid extraction, the entity purchased new equipment on July 1, 2021 for P3,000,000 with useful
life of 5 years. After the copper is removed from this mine, the equipment will be sold for an estimated
residual amount of P200,000. The entity expects to extract 4,000,000 tons of copper from the mine.
Actual production was 600,000 tons in 2021 and 500,000 tons were sold in 2021.

Uranus Company had various cash generating units. At year-end, one cash generating unit reported at
carrying amount cash P600,000, inventory P1,400,000, land P2,500,000, plant and equipment
P9,000,000, accumulated depreciation P1,500,000 and goodwill P1,000,000. The management
determined the value in use of the cash generating unit at P8,500,000. The fair value less cost of disposal
of the inventory was greater than carrying amount.

Revlon Company acquired all of the outstanding ordinary shares of an acquiree for P44,000,000. The
fair value of the acquiree’s identifiable tangible and intangible assets totaled P50,000,000 and the fair
value of liabilities assumed by the acquirer was P15,000,000. The acquirer performed the required
goodwill impairment test at year-end and revealed fair value of the acquiree’s net assets including
goodwill at P37,000,000 and carrying amount of acquiree’s net assets including goodwill at
P41,000,000.

Rabiya Company used the revaluation model for intangible assets. On March 1, 2021, the entity acquired
an intangible asset with indefinite life for P3,000,000. On December 31, 2021, it was determined that
the recoverable amount of the intangible asset was P2,700,000. On December 31, 2022, the intangible
asset had a recoverable amount of P2,820,000.

44. What amount of depletion should Surigao Company include in cost of goods sold for 2021?
a. 1,045,000
b. 1,254,000
c. 1,125,000
d. 1,350,000
45. What amount should Uranus Company report as impairment loss of plant and equipment?
a. 3,500,000
b. 4,500,000
c. 2,625,000
d. 3,375,000
46. What amount of goodwill should Revlon Company report at year-end after recognizing any
impairment loss?
a. 9,000,000
b. 4,000,000
c. 5,000,000
d. 0
47. What amount should Rabiya Company report as impairment loss for 2021 and gain on reversal of
impairment for 2022, respectively?
a. 300,000 and 120,000
b. 300,000 and 150,000
c. 120,000 and 300,000
d. 0 and 0

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SITUATION 12 – Three different entities

Royal Company purchased a trademark and incurred the following costs:

Purchase price 1,000,000
Nonrefundable value added tax 50,000
Training of personnel on the use of new trademark 70,000
Research expenditures associated with the purchase of the new trademark 240,000
Legal cost incurred to register the new trademark 105,000
Administrative salaries 120,000
Braxton Company, a major winery, began construction of a new facility in Mindanao. The following
costs were incurred in conjunction with the start-up activities of the new facility:
Production equipment 8,150,000
Travel costs of salaried employees 400,000
License fees 140,000
Training of local employees for production and maintenance operations 1,200,000
Advertising costs 850,000
During the current year, Montana Company began work on a research and development project. The
project was completed and commercial production of the developed product began in later part of the
year. All of the following expenditures were included in the Research and Development expense
account:
Salaries and wages for laboratory research 1,000,000
Design of preproduction prototype 200,000
Quality control during commercial production 100,000
Materials and supplies consumed for laboratory research 400,000
Construction of preproduction prototype 150,000
Purchase of equipment used solely for the project with useful life of 5 years 600,000
Patent filing and legal fee for completed project 50,000
Payment to others for research 300,000
Cost of adapting the new monitor for the specific needs of a customer 250,000
48. What amount should Royal Company report as initial cost of the trademark?
a. 1,000,000
b. 1,155,000
c. 1,465,000
d. 1,585,000
49. What portion of the organization costs should Braxton Company charge to expense?
a. 9,750,000
b. 1,600,000
c. 1,390,000
d. 2,590,000
50. What amount should Montana Company report as research and development expense?
a. 2,650,000
b. 2,170,000
c. 2,050,000
d. 2,350,000

THEORY

51. The items which are classified to profit and loss in the current period but were recognized in other
comprehensive income in the current or previous period are
a. Prior period errors
b Correcting entries
c. Unusual and irregular items
d. Reclassification adjustments

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52. In a period of declining prices, which inventory cost flow method would result in the highest cost of
goods sold?
a. Moving average method
b. Specific identification method
c. FIFO
d. Weighted average method
53. Closing entries are best described as
I. Made at the end of an accounting period
II. Prepared after the adjusting entries and financial statements have been prepared
III. Prepared for the purpose of reducing all nominal and temporary accounts to zero
a. I and II only
b. I and III only
c. I only
d. I, II and III
54. Gain or loss from disposal of investment property is the difference between the
a. Gross disposal proceeds and fair value of the asset
b. Net disposal proceeds and carrying amount of the asset
c. Gross disposal proceeds and carrying amount of the asset
d. Fair value and carrying amount of the asset
55. All of the following qualify as an underlying EXCEPT
a. Commodity price
b. Insurance index
c. Stock shares
d. Exchange rate
56. In its financial statements, an entity used the equity method of accounting for its 30% ownership of
an investee. At December 31, 2021, an investor has a receivable from the investee. How is receivable
reported in investor’s 2021 financial statements?
a. None of the receivable should be reported, but the entire receivable should be offset against the
investee’s payable to the investor
b. Seventy percent of the receivable should be separately reported, with the balance offset against
30% of the investee’s payable to investor
c. The total receivable should be included as part of the investment in associate without separate
disclosure
d. The total amount of the receivable should be disclosed separately
57. For IFRS reporting, the valuation methods used for intangible assets are
a. Revaluation model and fair value model
b. Cost model and fair value through profit or loss model
c. Cost model and fair value model
d. Cost model and revaluation model
58. Which of the following is an application of the principle of systematic and rational allocation?
a. Amortization of intangible asset
b. Research and development cost
c. Officers’ salaries
d. Sales commission
59. Continuing Professional Development (CPD) is required for
a. Both the renewal of the CPA license and accreditation to practice accountancy profession
b. Accreditation to practice accountancy profession
c. Neither renewal of CPA license nor accreditation to practice accountancy profession
d. Renewal of CPA license
60. An entity disclosed in the notes to its financial statements that a significant number of its unsecured
trade accounts receivable are with entities that operate in the same industry. This disclosure is
required to inform financial statement users of the existence of
a. Risk of measurement uncertainty
b. Off-balance sheet risk of accounting loss
c. Concentration of credit risk
d. Concentration of market risk

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61. Which statement is true regarding managerial accounting and financial accounting?
a. Managerial accounting is generally precise.
b. Managerial accounting need not follow GAAP while financial accounting must follow GAAP.
c. Managerial accounting has a future focus.
d. The emphasis on managerial accounting is relevance and the emphasis on financial accounting
is timeliness.
62. Which is included within the financial statements?
a. A statement of retained earnings
b. Accounting policies
b. An auditor’s report
d. Board of directors’ report
63. In analyzing financial statements, which financial statement would a potential investor primarily use
to assess liquidity and financial flexibility?
a. Statement of financial position
b. Income statement
c. Statement of comprehensive income
d. Statement of cash flows
64. Comprehensive income always
a. Is the same as net income
b. Is greater than net income
c. Is less than net income
d. Could be greater than or less than net income
65. When the cost of goods sold method is used to record inventory at net realizable value
a. There is a direct reduction in the estimated selling price that results in a loss.
b. A loss is recorded directly by crediting inventory.
c. Only the portion of the loss attributable to inventory sold during the period is recorded.
d. The net realizable value for ending inventory is substituted for cost and the loss is buried in cost
of goods sold.
66. An impairment loss is the excess of the carrying amount of the debt investment over
a. Expected cash flows
b. Present value of the expected cash flows
c. Contractual cash flows
d. Present value of the contractual cash flows
67. To compute the price to pay for a bond, what present value concept is used?
a. The present value of 1
b. The present value of an ordinary annuity of 1
c. The present value of 1 and present value of an ordinary annuity of 1
d. The future value of 1
68. An entity can commence capitalization of borrowing cost on a new construction project when
a. Loan interest relating to the project starts to be incurred
b. Technical site planning commences
c. Expenditures on the project start to be incurred
d. Construction work commences
69. An entity purchased land and a hotel with the plan to tear down the hotel and build a new hotel. The
allocated cost of the old hotel should be
a. Depreciated over the remaining life of the old hotel
b. Written off as loss in the year the hotel is torn down
c. Capitalized as part of the cost of the land
d. Capitalized as part of the cost of the new hotel
70. Which is an example of an activity that would be excluded from research and development cost?
a. Quality control during commercial production
b. Laboratory research aimed at discovery of new knowledge
c. Design, construction and testing of preproduction prototype and model
d. Testing in search for or evaluation of product or process alternative

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