Вы находитесь на странице: 1из 75

A1 PASSERS TRAINING, RESEARCH, REVIEW & DEVELOPMENT COMPANY

2nd Floor Sommerset Bldg., Lopez Jaena St. Jaro, Iloilo City
Tel. No.: (033) 320-2728; 09106547262
Email Address: a1nursingreviewic@yahoo.com.ph
BOARD OF CERTIFIED PUBLIC ACCOUNTANT
CERTIFIED PUBLIC ACCOUNTANT Licensure Examination SET A

THEORY OF ACCOUNT
GENERAL INSTRUCTIONS:
1. This test booklet contains 100 test questions.
2. Read INSTRUCTIONS TO EXAMINEES printed on your answer sheet.
3. Shade only one (1) box for each question on your answer sheets. Two or more boxes shaded will invalidate
your answer.
4. AVOID ERASURES.
INSTRUCTIONS:
1. Detach one (1) answer sheet from the bottom of your Examinee ID/Answer Sheet Set.
2. Write the subject title THEORY OF ACCOUNT on the box provided.
3. Shade Set Box A on your answer sheet if your test booklet is Set A; Set Box B if your test booklet is Set B.
__________________________________________________________________________________________

1. General purpose financial statements are the product of


a. Financial accounting
b. Managerial accounting
c. Both financial and managerial accounting
d. Neither financial accounting nor managerial accounting
2. Which of the following statements is not an objective of financial reporting?
a. To provide information that is useful in investment and credit decision.
b. To provide information about resources claims against those resources and changes in them.
c. To provide information on the liquidation value of an entity.
d. To provide information that is useful in assessing cash flow prospects.
3. The purpose of the International Accounting Standards Board is to
a. Issue enforceable standard which regulate the financial reporting of multinationals.
b. Develop a uniform currency in which the financial transactions of entities throughout the world would
be measured.
c. Develop a single set of high quality IFRS.
d. Arbitrate accounting disputes between auditors and international entities.
4. The underlying theme of the conceptual framework is
a. Decision usefulness
c. Reliability
b. Understand ability
d. Comparability
5. The Conceptual Framework includes all of the following except
a. Objective of financial reporting
d. Qualitative characteristics of accounting
b. Supplementary information
information
c. Elements of financial statements
6. Which of the following is a fundamental quality of useful accounting information?
7. a. Conservatism
9. c. Faithful representation
8. b. Comparability
10. d. Consistency
11. In the Conceptual Framework an enhancing qualitative characteristic is
12. a. Predictive value
14. c. Timeliness
13. b. free from error
15. d. Confirmatory value
16.
17. Which of the following is not a basic element of financial statements?
18. a. Asset
20. c. Equity
19. b. Statement of financial position
21. d. Income
22. Which of the following is not a basic assumption underlying the financial accounting structure?
23. a. Economic entity assumption
25. c. Periodicity assumption
24. b. Going concern assumption
26. d. Historical cost assumption
27. During the lifetime of an entity accountants produce statements at artificial points in time.
28. a. Objectivity
30. c. Economics entity
29. b. Periodicity
31. d. Going concern
32. When revenue is generally recognized?
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 1

33. a. When cash is received


35. c. When production is completed
34. b. When the warranty expire
36. d. When the sale occurs
37. Which of the following is not a required component of financial statements?
38. a. Presidents letter to shareholders
40. c. Income statement
39. b. Statement of financial position
41. d. Notes to financial statements
42. Under Philippine Financial Reporting Standards note to the financial statements
43. a. Must be quantifiable.
44. b. Must qualify as an element.
45. c. Amplify or explain items presented in the main body of the financial statements.
46. d. All of the choice are correct regarding notes to the financial statements.
47. Nominal accounts are also called
48. a. Temporary accounts
50. c. Real accounts
49. b. Permanent accounts
51. d. Mixed account
52. A trial balance may prove that debits and credit are equal but
53. a. An amount could be entered in the wrong account.
54. b. A transaction could have been entered twice
55. c. A Transaction could have been omitted.
56. d. All of these.
57. A journal entry to record a receipt of rent revenue in advance will include a
58. a. Debit to revenue
60. c. Credit to cash
59. b. Credit to rent revenue
61. d. Credit to unearned rent
62. An Adjusting entry to record an receipt and accrued expense involves a debit to
63. a. Expense account and a credit to an prepaid account.
64. b. Expense account and a credit to cash.
65. c. Expense account and a credit to a liability account.
66. d. Liability account and a credit to an expense account.
67. Reversing entries do not apply to which of the following items?
68. a. Unearned revenue
70. c. Prepaid insurance
69. b. Accrued wages
71. d. Depreciation
72. The statement of financial position information is useful for all of the following except
73. a. To compute rates of return
75. c. To evaluate capital structure
74. b. to analyze cash inflows and outflow for
76. d. To assess future cash flow
the period
77. A segment is to be reported separately when the segment revenue exceeds 10% of
78. a. Total combined revenue of all segments reporting profits.
79. b. Total revenue of all the entitys industry segments.
80. c. Total export and foreign sales.
81. d. Combined net income of all segment reporting profits.
82. All of the following statements are true regarding interim reporting, except
83. a. PFRS requires a complete set of financial statements at the interim reporting date.
84. b. PFRS requires entities to expense interim amount like advertising expenditures that could
85. Benefit later interim period.
86. c. PFRS allows a condensed set or complete set of financial statements.
87. d. No accruals or deferrals in anticipation of future events during the year should be reported.
88. Which of the following would represent the least likely use of an income statement
89. a. Use by customers to determine an entitys ability to provide needed goods and services.
90. b. Use by labor union s to examine earnings closely as a basis for salary discussions.
91. c. Use by government agencies to formulate tax and economic policy.
92. d. Use by investors interested in the financial position of the entity.
93. A change in accounting policy requires what kind of adjustment to the financial statements?
94. a. Current period adjustment
96. c. Retrospective adjustment
95. b. Prospective adjustment
97. d. Current and prospective adjustment
98. Changes in accounting estimate affect report amounts
99. a. Retrospectively only
101.
c. Currently and prospectively
100.
b. Prospectively only
102.
d. Currently and retrospectively
103.
Which of the following does not appear in a statement of retained earnings?
104.
a. Net loss
106.
c. Preference share dividends
105.
b. Prior period adjustment
107.
d. Other comprehensive income
108.
Which is not acceptable in displaying the components of other comprehensive income?
109.
a. Combined statement of retained
111.
c. Combined statement of
earning
comprehensive income
110.
b. Second income statement
112.
d. All of the above are acceptable
113.
Which of the following items should not be included in cash?
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

a.
b.

114.
a. Coins and currency in the cash register
115.
b. Checks from other parties presently in the cash register
116.
c. Amounts on deposit in checking account at the bank
117.
d. Postage stamps on hand
118.
A cash equivalent is a short-term highly liquid investment that is readily convertible into know
amount of cash and
119.
a. Is acceptable as a means to pay current liabilities.
120.
b. Has a current market value that is greater than original cost
121.
c. Bears an interest rate that at least equal to the prime rate of interest.
122.
d. Is so near its maturity than it presents insignificant risk of changes in interest rates.
123.
All of the following are problems associated with the valuation of accounts receivable, except
124.
a. Uncollectible accounts
126.
c. Cash discounts under the net
125.
b. Returns
method
127.
d. Allowances granted
128.
129.
Which of the following methods of determining bad debt expense does not properly match
expense and revenue?
130.
a. Charging bad debts with a percentage of sales under the allowance method.
131.
b. Charging bad debts with an amount derived from percentage of accounts receivable under
the allowance method.
132.
c. Charging bad debts with an amount derived from aging accounts receivable under the
allowance method.
133.
d. Charging bad debts as accounts are written off as uncollectible.
134.
Which of the following statements best describes the term liabilities?
135.
a. An excess of equity over current assets
136.
b. Resources to meet financial commitment as they fall due
137.
c. The residual interest in the assets of the entity after deducting all of its liabilities
138.
d. A present obligation of the entity arising fro past events
139.
Which of the following statements best describes the term financial position?
140.
a. The net income and expenses of an entity
141.
b. The financial assets less financial liabilities of an entity
142.
c. The potential to contribute to the flow of cash and cash equivalents to the entity
143.
d. The assets liabilities and equity of an entity
144.
Which of the following should not be taken into account when determining the cost of
inventories?
145.
a. Storage cost of part-finished goods
146.
b. Trade discounts Recoverable purchase taxes
147.
c. Recoverable purchase taxes
148.
d. Import duties on shipping of inventory inward
149.
Which of the following costs should be included in inventory valuation?
150.
a. Administrative costs
152.
c. Storage costs relating to finish
151.
b. Abnormal material usage
goods
153.
d. Fixed production overheads
154.
Which classification of the cash flow arising from the proceeds from an earthquake disaster
settlement would be most appropriate?
155.
a. Cash flows from operating
157.
c. Cash flows from financing
activities
activities
156.
b. Cash flows from investing
158.
d. Does not appear in the statement
activities
of cash flows
159.
Which of the following should be treated as a change in accounting policy?
I. A new accounting policy of capitalizing development costs as a project has become eligible for
capitalization for the first time.
II. A new policy resulting from the requirements of a new PFRS.
III. To provide more relevant information items of property, plant and equipment are now being
measured at fair value, whereas they had previously been measured at cost.
IV. An entity engaging in construction contract for the first time needs an accounting policy to deal with
this.
I, II, III and IV
c. II and III only
I, and II only
d. I and IV only
160.
Which of the following statements in relation to deferred tax is true?
I. Deferred tax liabilities are the amounts of income taxes payable in future periods in respect of
taxable temporary differences.
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

a.
b.

a.

II. Deferred tax assets are the amounts of income taxes recoverable in future periods in respect of
deductible permanent differences.
I only
c.
Both I and II
II only
d.
Neither I nor II
161.
Which term best describes the removal of an asset from the statement of financial position?
162.
a. De recognition
164.
c. Write off
163.
b. Impairment
165.
d. Depreciation
166.
Which of the following statements is correct?
167.
a. Assets are depreciated even if their fair value exceeds carrying amount
168.
b. Land and buildings are not accounted separately when acquired together
169.
c. A noncurrent asset acquired as the result of an exchange of assets is not recognized
170.
d. A gain .on disposal of a noncurrent asset is classified as revenue
171.
Which should not be capitalized a cost of properly plant and equipment?
172.
a. Cost of excess materials resulting from a purchasing error
173.
b. Cost of testing whether the asset works correctly
174.
c. Initial delivery and handling cost
175.
d. Cost of preparing the site for installation
176.
Which should be included in the cost of an item of properly plant and equipment?
177.
a. Initial operating losses while
179.
c. Costs of training staff on the new
demand builds up
asset
178.
b. Apportioned general overhead
180.
d. Installation and assembly costs
cost
181.
Which of the following conditions does not apply to the recognition of revenue for transactions
involving the rendering of services?
182.
a. The amount of revenue can be measured reliably
183.
b. It is probable that payment for the services shall be received by the relinquished
184.
c. Ownership has been transferred to the buyer
185.
d. Significant risks and rewards of ownership have been transferred from the seller to the buyer
186.
Which must not be satisfied before revenue from the sale of goods should be recognized?
187.
a. Revenue can be reliably measured
188.
b. Managerial control over the goods sold has been relinquished
189.
c. Ownership has been transferred to the buyer
190.
d. Significant risks and rewards of ownership has been transferred from the seller to the buyer
191.
Which of the following statements best describes other lone-term employee benefits?
192.
a. Benefits not falling due wholly within twelve months of the end of the period in which the
service is service is rendered
193.
b. Benefits which fall due within twelve months often end of the period in which the service is
rendered
194.
c. Benefits payable as a result of an entitys decision to end an employees employment before
the normal retirement date
195.
d. Benefits which are payable after completion of employment
196.
Which of the following statements is incorrect in relation to government grant?
197.
a. Any adjustment needed when a government grant becomes repayable is accounted for as a
change in accounting estimate.
198.
b. In respect of loans from the government at an interests rate 0% an imputed interest charge is
required.
199.
c. Where condition apply to a government grant it should only be recognized when there is
reasonable assurance that the conditions will be met.
200.
d. A government grant that becomes receivable as compensation for losses already incurred
should be recognized as income of the period in which it becomes receivable.
201.
Which statement about the capitalization of borrowing costs is true?
202.
a. If Funds come from general borrowings the amount to the capitalized is based on the
weighted average cost of borrowing.
203.
b. Capitalization always continues until the asset is brought into use.
204.
c. Capitalization always commences as soon as expenditure f the asset is incurred.
205.
d. Capitalization always commences as soon as interest on relevant borrowing is being
incurred.
206. Which of the following treatments is required for borrowing costs incurred that are directly
attributable to the construction of a qualifying asset?
I. Recognize as an expense in the period incurred.
II. Capitalize as a part of the cost of the asset.
I only
b.
II only
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

c.

a.
b.

a.
b.

a.
b.

a.
b.

Either I or II
d.
Neither I nor II
207. An entity completely the following transactions in the current year:
I. Sold a car to the uncle of the entitys finance director.
II. Sold goods to another entity owned by the daughter of the entitys managing director.
208.
Which transaction would require disclosure in the financial statements of the entity?
209.
a. Neither I nor II
211.
c. II only
210.
b. I only
212.
d. Both I and II
213.
214. Which of the following is not a related party of an entity?
215. a. A shareholder of the entity owning 30% of the ordinary share capital
216. b. An entity providing banking facilities to the entity
217. c. An associate of the entity
218. d. Key management personnel of the entity
219. Which of the following statements about dividends is true?
I. Dividends in respect of ordinary shares are debited directly in equity.
II. Dividends in respect of redeemable preferences shares are debited directly in equity.
I only
Both I and II
II only
d.
Neither I nor II
220. Which of the following statements with respect to interim reporting is true?
I. It is necessary to count inventories in full at the end of each interim accounting period.
II. The net realizable value is determined by reference to selling prices at the interim date.
I only
c.
Both I and II
II only
d.
Neither I nor II
221. Which of the following terms best describes the higher of fair value less cost of disposal and value
in use?
222. a. Recoverable amount
224. c. Depreciable amount
223. b. Revalued amount
225. d. Carrying amount
226.
Which of the following statements in relation to a contingent liability is true?
I. An obligation as a result of the entity creating a valid expectation that it will discharge its
responsibilities is a contingent liability.
II. A present obligation that arises from past events but cannot be reliably measured is a contingent
liability.
I only
Both I and II
II only
Neither I nor II
227.
A provision should be recognized for which of the following?
228.
a. Future operating losses
229.
b. Obligations under insurance contracts
230.
c. Reductions in fair value of financial instruments
231.
d. Obligations for plant decommissioning costs
232.
Which of the following is not relevant in determining the useful life of an intangible asset?
233.
a. Obsolescence
235.
c. The expected usage of the asset
234.
b. Expected action of competitor
236.
d. The residual value of the asset
237.
A brand name that was acquired separately should initially be recognized at
238.
a. Recoverable amount
240.
c. Fair value
239.
b. Either cost or fair value at the
241.
d. Cost
choice of the acquirer
242.
Which of the following statements is true?
I. Intangible assets cannot be treated as having an indefinite useful life.
II. Intangible assets with a finite useful life should be measured at cost and tested annually for
impairment.
I only
Both I and II
II only
Neither I nor II
243.
Which of the following additional disclosures must be made when an entity chooses the cost
model as its accounting policy for investment properly?
244.
a. The fair value of the property
247.
d. The net realizable value of the
245.
b. The present value of the property
property
246.
c. The value in use of the property
248.
Which of the following disclosures should be made when the fair value model has been adopted
for investment property?
249.
a. Depreciation method used
251.
c. Useful life or depreciation rate
250.
b. The amount of impairment loss
used
recognized
252.
d. Net gains or losses from fair
value adjustments
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

254.
253.
Where
a.
In profit
should
or loss
changes in the fair value of a herd
256.
of cattle be
c .In
recognized
profit or loss
in the
or financial
other
255.statements?
b. In other comprehensive income
comprehensive income
257.
d. In the statement of cash flows
258.
Which of the following reports is not a component of the financial statement?
259.
a. Statement of financial position
261.
c. Directors report
260.
b. Statement of changes in equity
262.
d. Notes to the financial statements
263.
264.
265.
266.
Which of the following information is not specifically a required disclosure?
267.
a. Name of the reporting entity or other means of identification, and any change in that
information from the previous year.
268.
b. Names of major shareholders of the entity.
269.
c. Level of rounding used in presenting the financial statements.
270.
d. Whether the financial statements cover the individual entity or a ground of entities.
271.
Which one of the following is not required to be presented as minimum information on the face
of the statement of financial position?
272.
a. Investment property
274.
c. Biological assets
273.
b. Investments accounted under the
275.
d. Contingent liability
equity method
276.
Inventories are defined by all of the following except
277.
a. Used in the production or supply of goods and services for administrative purposes.
278.
b. Held for sale in the ordinary course of business.
279.
c. In the process of production for such sale.
280.
d. In the form of materials or supplies to be consumed in the production process or the
rendering of services.
281.
How should an entity disclose the dividends received in the statement of cash flows?
282.
a. Operating cash inflow
283.
b. Either as operating cash inflow or as financing cash inflow
284.
c. Either as operating cash inflow or as financing cash inflow
285.
d. As an adjustment in the operating activities section
286.
At the end of the current reporting period an entity carried a receivable from a major customer.
The customer declared bankruptcy after the end of reporting period but prior to authorization of financial
statements. How should the entity account for this event?
287.
a. Disclose in the notes the fact that the customer declared bankruptcy.
288.
b. Make a provision for this post-reporting period event
289.
c. Ignore the event
290.
d. Reverse the sale pertaining to the receivable and treat it as an error.
291.
The initial operating losses should be
292.
a. Deferred and authorized over a reasonable period of time.
293.
b. Expensed and charged to the income statement.
294.
c. Capitalized as part of the cost of plant as a directly attributable cost.
295.
d. Charged to retain earning.
296.
An entity owns a fleet of cars and ships. The entity decided to revalue its property, plant and
equipment. Which option should be selected in relation to the revaluation?
297.
a. Revalue only one-half of each class of property, plant and equipment.
298.
b. Revalue an entire class of property, plant and equipment.
299.
c. Revalue one ship at a time as it is easier than revaluing all ships altogether.
300.
d. Since assets are being revalue regularly, here is no need to depreciate.
301.
The classification of a lease as either an operating or finance lease is based on
302.
a. The length of the lease.
303.
b. The transfer of the risks and rewards of ownership.
304.
c. The minimum lease payments being at least 50% of the fair value.
305.
d. The economic life of the asset.
306.
The accounting concept that is principally used to classify leases into operating and finance is
307.
a. Substance over form
309.
c. Neutrality
308.
b. Prudence
310.
d. Completeness
311.
Which situation would prima facie lead to a lease being classified as an operating lease?
312.
a. Transfer of ownership to the lessee at the end of the lease term.
313.
b. Option to purchase at a value below the fair value of the asset.
314.
c. The lease term is for a major part of the assets life.
315.
d. The present value of the minimum lease payments is 50% of the fair value of the asset.
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

316.
Revenue from an artistic performance is recognized once
317.
a. The audience register for the
319.
c. Cash has been received from the
event online
ticket sales.
318.
b. The tickets for the concert are
320.
d. The event takes place.
sold.
321.
In the case of a nonmonetary grant, which of the following is prescribed?
322.
a. Record the asset at replacement cost and the grant at a nominal value.
323.
b. Record the grant at a value estimate by management.
324.
c. Record both the grant and the asset at fair value of the nonmonetary asset.
325.
d. Record only the asset at fair value and not recognize the fair value of the grant.
326.
Which of the following should not be considered a qualifying asset in relation to capitalization of
borrowing cost?
327.
a. A power generation plant that normally takes two years to construct.
328.
b. An expensive private jet that can be purchased from a local vendor.
329.
c. A toll bridge that usually takes more than a year to build.
330.
d. A ship that normally takes one to two years to complete.
331.
The equity method is not required to be applied when the associate has been acquired and held
with a view to its disposal within what time period?
332.
a. Six months
334.
c. Two years
333.
b. Twelve months
335.
d. In the near future
336.
How is goodwill arising on the acquisition of an associate dealt with in the financial statements?
337.
a. It is amortized.
338.
b. It is impairment tested individually.
339.
c. It is written off against profit or loss.
340.
d. Good its not recognized separately within the carrying amount of the investment.
341.
Which of the following assets or liabilities should be considered nonmonetary?
342.
a. Trade receivables
344.
c. Accrued expense and other
343.
b. Deferred tax liabilities
payables
345.
d. Taxes payable
346.
Which of the following assets is not a financial asset?
347.
a. Cash
348.
b. An equity instrument of other entity
349.
c. A contract that may or will be settled in the entitys own instrument and is not classified as an
equity instrument of the period.
350.
d. Prepaid expense
351.
Earnings per share are calculated before accounting for which items?
352.
a. Preference dividend for the period
354.
c. Taxation
353.
b. Ordinary dividend
355.
d. Minority
356.
If a bonus issue occurs between the year-end and the date financial statements are authorized
357.
a. EPS both for the current and the previous year are adjusted.
358.
b. EPS for the current year only is adjusted.
359.
c. No adjustment is made to EPS.
360.
d. Dilute EPS only is adjusted.
361.
Publicly traded entities are encourage to provide interim financial reports
362.
a. At least at the half year and within 60 days of the end of interim period.
363.
b. Within a month of the half year-end.
364.
c. On a quarterly basis.
365.
d. Whenever the entity wishes.
366.
If an entity does not prepare interim financial reports
367.
a. The year-end financial statements are deemed not to comply with FRRS.
368.
b. The year-end financial statements compliance with PFRS is not affected.
369.
c. The year-end financial statements will not be acceptable under local legislation.
370.
d. Interim financial reports should be included in the year-end financial statements.
371.
Value in use is
372.
a. The market value.
373.
b. The discounted present value of future cash flows arising from use the asset and from its
disposal.
374.
c. The higher of fair value the asset is recognized in the statement of financial position.
375.
d. The amount at which the asset is recognized in the statement of financial position.
376.
Estimate of future cash flows in determining value in use normally would cover projections over
maximum of
377.
a. Five years
379.
c. Fifteen years
378.
b. Ten years
380.
d. Twenty years
381.
Which of the following cash flows should not be included in calculating value in use?
382.
a. Cash flows from disposal.
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

383.
b. Income tax payment.
384.
c. Cash flows from the sale of assets produced by the asset.
385.
d. Cash outflows incurred to generate the cash inflows the continuing use of the asset.
386.
A cash-generating unit is
387.
a. The smallest business segment.
388.
b. Any grouping of assets that generates cash flows.
389.
c. Any group of assets that are reported separately to management.
390.
d. The smallest group of assets that generates independent cash flows from continuing use.
391.
When allocating impairment loss such a loss should reduce the carrying amount of which asset
first?
392.
a. Property, plant, and equipment
394.
c. Goodwill
393.
b. Intangible assets
395.
d. Current assets
396.
397.
398.
399.
An investment property should be measured initially at
400.
a. Cost
401.
b. Cost less accumulated impairment losses.
402.
c. Depreciable cost less accumulated impairment losses.
403.
d. Fair value less accumulated impairment losses.
404.
A gain arising from change in fair value of an investment property for which an entity has opted
to use the fair value model is recognized in
405.
a. Net profit for the year
407.
c. Valuation reverses in the
406.
b. General reverses in the
shareholders equity
shareholders equity
408.
d. Retained earning
409.
Generally speaking biological assets relating to agricultural activity should be measured using
410.
a. Historical cost
412.
c. A fair value approach
411.
b .Historical cost less depreciation
413.
d. Net realizable value
less impairment
414.
Where there is a production cycle of more than one year for a biological asset, separate
disclosure is encouraged for
415.
a. Physical change only
418.
d. Physical change and price
416.
b. Price change only
change
417.
c. Total change in value
419.
How should the income from discontinued operation be presented in the income statement?
420.
a. The entity should disclose a single amount on the face of the income statement below the
income from continuing operation.
421.
b. The amounts from discontinued operation should be broken down over each category of
revenue and expense.
422.
c. Discontinued operation should be shown as a movement on retained earning.
423.
d. discontinued operation should be shown as a line item after gross profit.
424.
Which of the following criteria does not have be met in order for an operation to be classified as
discontinued?
425.
a. The operation should represent a separate major line of business or geographical area.
426.
b. The operation is part of a single plan to dispose of a separate major line of business or
geographical.
427.
c. The operation is a subsidiary acquired exclusively with a view to resale.
428.
d. The operation must be sold within three months of the year-end.
429.
How should the assets and liabilities of a disposal group classified as held for sale be shown in
the statement of financial position?
430.
a. The assets and liabilities should be offset and presented as a single amount.
431.
b. The assets of the disposal group should be shown separately from other assets and the
liabilities should be shown separately from other liabilities.
432.
c. The assets and liabilities of the disposal group should not be presented.
433.
d. There should be no separate disclosure of assets and liabilities that form part of a disposal
group.
434.
95. Which is not a characteristic of the full cost method of accounting in the oil and gas
industry?
435.
a. All costs incurred in acquiring exploring and developing within a defined cost center are
capitalization and amortized.
436.
b. Costs are capitalized even if a specific project in a cost center was a failure.
437.
c. Costs of unsuccessful acquisition and exploration activities are charged to expense.
438.
d. Exploration and evaluation asset is classified either as tangible asset or an intangible asset
according to the nature of the asset.
96. Which expenditures would never qualify as an exploration and evaluation asset?
439.
a. Expenditures for acquisition of right to explore.

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

440.
b. Expenditures for exploratory drilling.
441.
c. Expenditures related to the development of mineral resources.
442.
d. Expenditures for activities in relation to evaluating the technical feasibility and commercial
viability of extracting a mineral resource.
97. The accounting for a fair value hedge records the derivative at
443.
a. Amortized cost
445.
c. Fair value
444.
b. Carrying amount
446.
d. Historical cost
98. Which of the following represents the total number of shares that a corporation may issue under the terms of
its charter?
99. a. Authorized shares
101.
c. Unissued shares
100.
b. Issued shares
102.
d. Outstanding shares
103.
Shares that have a fixed per-share amount printed on each share certified are called
104.
a. Stated value shares
106.
c. Uniform value shares
105.
b. Fixed value shares
107.
d. Par value shares
108.
100.Cash dividends are paid on the basis of the number of shares
109.
a. Authorized
110.
b. Issued
111.
c. Outstanding
112.
d. Outstanding less the number of treasury shares

113.

120.
121.

A1 PASSERS TRAINING, RESEARCH, REVIEW & DEVELOPMENT COMPANY


114.
2nd Floor Sommerset Bldg., Lopez Jaena St. Jaro, Iloilo City
115.
Tel. No.: (033) 320-2728; 09106547262
116.
Email Address: a1nursingreviewic@yahoo.com.ph
117.
118.
BOARD OF CERTIFIED PUBLIC ACCOUNTANT
119.
CERTIFIED PUBLIC ACCOUNTANT Licensure Examination SET B

122.

AUDITING THEORY

123.
GENERAL INSTRUCTIONS:
124.
1. This test booklet contains 80 test questions.
125.
2. Read INSTRUCTIONS TO EXAMINEES printed on your answer sheet.
126.
3. Shade only one (1) box for each question on your answer sheets. Two or more boxes shaded will
invalidate your answer.
127.
4. AVOID ERASURES.
128.
129.
INSTRUCTIONS:
130. 1. Detach one (1) answer sheet from the bottom of your Examinee ID/Answer Sheet Set.
131. 2. Write the subject title AUDITING THEORY on the box provided.
132. 3. Shade Set Box A on your answer sheet if your test booklet is Set A; Set Box B if your test booklet is
Set B.
133.
_________________________________________________________________________________
_________
134.
1. An Exception in a test of control provides only an indication of the likelihood of monetary misstatements in the
financial statements because test of controls do not reveal whether monetary misstatements have actually
occurred.
135.
136.
An Exception in a substantive test of transactions provides an indication of the likelihood of monetary
misstatements in the financial statements because substantive tests of transaction do reveal whether
monetary misstatements have actually occurred.
137.
138.
A. True; False
C. False; True
139.
B. false; False
D. True; True
2. Which of the following services provides the lowest level of assurance on a financial statement?
140.
A. An audit
141.
B. A review
142.
C. Neither service provides assurance on financial statements.
143.
D. Each service provides the same level of assurance on financial statements.
3. Which one of the following is more difficult to evaluate objectively?
144.
A. Presentation of financial statements in accordance with PFRS.
145.
B. Compliance with government regulation.
146.
C. Efficiency and effectiveness of operations.
147.
D. All three of the above are equally difficult.

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

4. If the auditor believes that the financial statements are not fairy state or is unable to reach a conclusion
because of insufficient evidence, the auditor
148.
A. Should withdraw from the engagement.
149.
B. Should request an increase in audit fees so that more resources can be used to conduct the
audit.
150.
C. Has the responsibility of notifying financial statement users through the auditors report.
151.
D. Should notify regulators of the circumstances.
5. In comparing management fraud with employee fraud, the auditors risk of falling to discover the fraud is
152.
A. Greater for management fraud because mangers are inherently more deceptive than
employees.
153.
B. Greater for management fraud because of managements ability to override exiting internal
controls.
154.
C. Greater for employee fraud because of the higher crime rate among blue collar workers.
155.
D. Greater for employee fraud because of the larger number of employees in the organization.
6. Which of the following statements best describe the auditors responsibility regarding the detection of fraud?
156.
A. The auditor is responsible for the failure to detect fraud only when such failure clearly results
from non- performance of audit procedures specifically described in the engagement letter.
157.
B. The auditor is required to provide reasonable assurance that the financial statements are free
of the both material errors and fraud.
158.
C. The auditor may extend auditing procedures to actively search for evidence of fraud where
examination indicates that fraud may exits.
159.
D. The auditor is responsible for the failure to detect fraud only when an unmodified opinion is
issued.
160.
161.
7. Which of the following statements is not correct?
162.
A. It is possible to vary the sample size from one unit to 100% of the items in the
population.
163.
B. The decision of how many items to test should not be influenced by the increase costs of
performing the additional tests.
164.
C. The decision of how many items to test must be made by the auditor for each audit
procedure.
165.
D. The sample size for any given procedure is likely to vary from audit to audit.
8. For audit evidence to be compelling to the auditor it must be sufficient and appropriate.
166.
Which statement below is not correct regarding the appropriateness of audit evidence?
167.
A. The more effective the internal control system, the more assurance it provides the
auditor about the reliability of financial reporting by the client.
168.
B. An auditors opinion to be economically useful and profitable to the auditing firm needs to
be formed within a reasonable time and based on evidence obtain that assures profits for the auditing
firm.
169.
C. Evidence obtained from independent sources outside the entity is generally more reliable
than evidence secured solely within the entity.
170.
D. The independent auditors direct personal knowledge, obtained through inquiry,
observation and inspection, is generally more persuasive than information obtained indirectly.
9. Which of the following is not a correct use of the terminology in relation to audit evidence?
171.
A. Evidence obtained from an independent source outside the client organization is more
reliable than obtained from within.
172.
B. Documentary evidence is more reliable when it is received by the auditor indirectly rather
than directly.
173.
C. Documents that originate outside the company are considered more reliable than those
that originate within the clients organization.
174.
D. External evidence, such as communications form banks is generally regarded as more
reliable than answers obtained from inquires of the client.
10. When making decisions about evidence for a given audit the auditors goal is to obtain a sufficient amount
of timely reliable evidence that is relevant to the information being verified. In addition the goal of audit
efficiency is to gather and evaluate the information
175.
A. No matter the cost involved in obtaining such evidence.
176.
B. Even if cost is irrelevant to the auditor because they bill the client for costs incurred.
177.
C. At the lowest possible total cost.
178.
D. At the cost suggested in the engagement letter.
11. The auditor is concerned that a client is falling to bill customers for shipments. An audit procedure that
would gather relevant evidence would be to

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

10

179.
A. Select a sample of duplicate sales invoices and trace each to related shipping
documents.
180.
B. Trace a sample of shipping documents to related duplicate sales invoices.
181.
C. Trace a sample of sales Journal entries to the Accounts Receivable subsidiary ledger.
182.
D. Compare the total of the Schedule of Accounts Receivable with the balance of the
Accounts Receivable account in the general ledger.
12. The purpose of an engagement letter is to
183.
A. Document the CPA firms responsibility to external users of the audited financial
statements.
184.
B. Document the term of the engagement.
185.
C. Notify the audit staff of an upcoming engagement so that personnel scheduling can be
facilitated.
186.
D. Emphasize managements responsibility for approving the audit program.
13. The predecessor auditor is required to respond to the request of the successor auditor for information, but
the response can be limited to stating that no information will be provided when
187.
A. The predecessor auditor has poor relation with the successor auditor.
188.
B. The client is dissatisfied with the predecessors work.
189.
C. There are actual or potential legal problems between the client and the predecessor.
190.
D. The predecessor believes that the client lacks integrity.
14. The audit team gather information about a new clients business and industry in order to obtain
191.
A. An understanding often clients internal control system for financial reporting.
192.
B. An understanding of how economic events and transactions have an effect on the
companys financial statements.
193.
C. Information about engagement risk.
194.
D. Information regarding whether the company is engaging in financial statement fraud.
15. During audit planning, the auditor uses analytical procedures primarily to
195.
A. Identify weakness in internal control.
196.
B. Determine if the companys financial statements appears reasonable and are free of
material misstatement.
197.
C. Determine the correspondence of the companys financial statements to the valuation
and accuracy audit objectives.
198.
D. Understand the clients business and industry and to indicate possible misstatements.
16. When performing planning analytical procedures for a client, the auditor detected that the gross profit
percentage had declined by 50% from the previous year to the year currently under audit. The auditor
should
199.
A. Investigate the possibility the client may have made an error in their cost of goods sold
computation.
200.
B. Asset management in developing greater cost efficiencies in their product line.
201.
C. Prepare a going concern opinion for the client.
202.
D. Advise the client to have extensive disclosure to alleviate investor concern.
17. The auditors primary purpose in auditing the clients system of internal control over financial reporting is
203.
A. To prevent fraudulent financial statements from being issued to the public.
204.
B. To evaluate the effectiveness of the companys internal control over all relevant
assertions in the financial statements.
205.
C. To report to management that the internal controls are effective in preventing
misstatements from appearing on the financial statements.
206.
D. To efficiency conduct the audit of financial statements.
18. Which of the following factors may increase risks to an organization?
207.
208.
A
B
C
D
Geographic dispersion of company operation
Yes
No
Yes
No
Presence of new information technologies
Yes
No
Yes
No
209.
19. Which of the following hest describes the purpose of control activities?
210.
A. The actions, policies and procedures that reflect the overall attitude management.
211.
B. The identification and analysis of risks relevant to the preparation of financial statements.
212.
C. The policies and procedures that help ensure that necessary actions are taken to
address risk to the achievement of the entitys objectives.
213.
D. Activities that deal with ongoing assessment of the quality of internal control by
management.
20. A company is concerned with the theft of cash after the sale has been recorded. One way in which
fraudsters conceal the theft is by a process called lapping. Which of the following best describes
lapping?
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 11

214.
A. Reduce the customers account by recording a sales return.
215.
B. Write off the customers account
216.
C. Reduce the customers account by recording a sales allowance.
217.
D. Apply the payment from another customer to the customers account.
21. An important characteristic of IT is uniformity of processing. Therefore, a risk exits that
218.
A. Auditors will not be able to access data quickly.
219.
B. Auditors will not be able to determine if data is processed consistently.
220.
C. Erroneous processing can result in the accumulation of a great number of misstatements
in a short period of time.
221.
D. All of the above.
22. Which of the following statements is not true?
222.
A. Analytical procedures emphasize the overall reasonableness of transactions and
balances.
223.
B. Test of controls are concerned with evaluating whether controls are sufficiently effective
to justify control risk and thereby reducing analytical procedures.
224.
C. Substantive tests of transactions emphasize the verification of transactions recorded in
the journals and then posted in the general ledger.
225.
D. Tests of details of balances emphasize the ending balances in the general ledger.
23. An examination of part of an organizations procedures and methods for the purpose of evaluating
efficiency and effectiveness is what type of audit?
226.
A. Production audit.
228.
C. Compliance audit.
227.
B. Financial statement audit.
229.
D. Operation audit.
24. In many audits of the sales transactions, subtractive tests of transactions can be reduced in determining the
completeness objective because
230.
A. Understatements of assets and income are a greater concern than overstatements.
231.
B. Overstatements of assets and income are a greater concern than understatements.
232.
C. It doesnt matter if income is understated because the savings on income tax offsets the
reduced revenue and net income is correct.
233.
D. The unrecorded sales cause a reduction of accounts receivable; therefore, the ratio of the
two financial statements will not be misleading.
25. To determine if a sample is truly representative of the population, an auditor would be required to
234.
A. Conduct multiple samples of the same population.
235.
B Never use sampling because of the expense involved.
236.
C. Audit the entire population.
237.
D. Use systemic sample selection.
26. The most important test of details of balances to determine the existence of recorded accounts receivable
is
238.
A. Tracing detail of sales invoices to shipping documents.
239.
B. Tracing the credits in accounts receivable to bank deposit.
240.
C. Tracing sales returns entries to credit memos issued and receiving room reports.
241.
D. The confirmation of customers balance.
27. It is common to use combination of positive and negative confirmations by sending the latter to accounts
with larger balances and the former to those with small balances.
242.
243.
When sending confirmations during most audits of accounts receivable, the emphasis is
often on confirming larger and older balances.
244.
A. True; True
C. True; False
245.
B. false; false
D. False; True
28. Which of the following is the most effective control procedure to detect vouchers that were prepared for
the payment of good that were not received?
246.
A. Count goods upon receipt in storeroom.
247.
B. Match purchase order, receiving report, and vendors invoice for each voucher in
accounts payable department.
248.
C. Compare goods received with goods requisitioned in receiving department.
249.
D. Verify vouchers for accuracy and approval in internal audit department.
29. Internal controls that are likely to prevent the client from including as a business expense those
transactions that primarily benefit management or other employees rather than the entity being audited
satisfy the control objective that
250.
A. Acquisitions are correctly
252.
C. Acquisitions are correctly
valued.
classified.
251.
B. Existing acquisitions are
253.
D. recorded acquisition are for
recorded.
goods or services received.
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

12

30. A CPA learns that his client has paid a vendor twice for the same shipment, once based upon the original
invoice and once based upon the monthly statement. A control procedure that should have prevented this
duplicate payment is
254.
A. Attachment of the receiving report to the disbursement report.
255.
B. Prenumbering of disbursement vouchers.
256.
C. Use of a limit or reasonableness test.
257.
D. Prenumbering of receiving reports.
31. If the client fails to record disposals of property, plant, and equipment, both the original cost of the asset
account and the net book value will be incorrect. What will the effect be of this misstatement on the
original cost and the book value?
258.
A. both will be overstated indefinitely.
259.
B. The original cost will overstated indefinitely, and the net book value will be overstated
until the asset is fully depreciated.
260.
C. The original cost will be overstated indefinitely and the net book value will be understated
indefinitely.
261.
D. The original cost will be overstated indefinitely and the net book value will be understated
until the asset is fully depreciated.
32. The nature, extent, and timing of substantive tests of payroll transactions vary depending, In part, on
assessed control risk.
262.
263.
Physical control over assets is not a type of control that is applicable to the payroll cycle.
264.
A. True; False
C. True; True
265.
B. False; True
D. False; False
33. Which of the following controls would be appropriate regarding the release of materials from a stockroom?
266.
A. Production employees request materials be delivered to their work areas as they need
them.
267.
B. Stockroom employees deliver materials to work areas throughout the day to maintain
acceptable levels
268.
of safety stock-no written records are maintained.
269.
C. Production employees submit approved requisition forms to the stockroom for material
needed.
270.
D. Production employees in needed of material should personally pick up needed materials
from the Stockroom.
34. If the auditor concludes that physical controls over inventory are so inadequate that the inventory will be
difficult to count the auditor should ordinary
271.
A. Withdraw from the engagement.
272.
B. Issue a qualified audit report.
273.
C. Conduct expanded observation tests of physical inventory.
274.
D. Hire an expert to assist the auditor.
35. You are gathering evidence for the audit objective that existing inventory items are included in the
inventory listing schedule. The audit procedure that would provide you with the best evidence to confirm
this objective is
275.
A. trace from inventory tags to the inventory listing schedule and make sure the inventory
tag is included.
276.
B. Trace the inventory totals to the general ledgers.
277.
C. Perform tests of lower-cost-or-net realizable value.
278.
D. Account for unused tags shown in the auditors documentation to make sure no tags
have been added.
36. Which of the following is not an objective of the auditors examination of notes payable?
279.
A. To determine whether internal controls adequate.
280.
B. To determine whether clients financing arrangements are effective and efficient.
281.
C. To determine whether transactions regarding the principal and interest of notes are
properly authorized.
282.
D. To determine whether the liability for notes and related interest expense and accrued
liabilities are properly stated.
37. Which of the following errors would be least likely to be discovered during the tests of the bank
reconciliation?
283.
A. Payment was made to an employee for more hours than he worked.
284.
B. Cash received by the client subsequent to the balance sheet date was recorded as cash
receipts in the current year.
285.
C. Payments on notes payable debited directly to the bank balance by the bank were not
entered in the clients records.
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

13

286.
D. Deposits were recorded in the cash receipts records near the end of the year, deposited
in the bank, and were included in the bank reconciliation as a deposit in transit.
38. A major consideration in the audit of the general cash balance is the possibility of fraud.
287.
The auditor must extend his or her procedures in the audit year-end cash to determine the
possibility of a material fraud when there are
288.
A. Large cash balances at the end of the year.
289.
B. Large cash receipts and disbursements during the year.
290.
C. No imprest accounts used for payroll.
291.
D. Inadequate internal controls.
39. Refusal by a client to prepare and sign the representation letter would require the auditor to issue
292.
A. Qualified opinion or a
294.
C. Qualified or an adverse
disclaimer.
opinion.
293.
B. Adverse opinion or a
295.
D. Unmodified opinion with an
disclaimer.
emphasis of matter paragraph.
40. Assurance provided by a review is substantially less than an audit. Which of the following statements is
true regarding these services?
41. A. A review requires more substantive evidence than an audit.
42. B. An audit requires less evidence related to internal control than review.
43. C. A review requires less evidence than an audit.
44. D. None of the above statements is true.
45. Which of the following groups could not be involved in an operational audit?
46. A. CPA firms.
49. D. None is correct; that is, all of the above
47. B. Government auditors.
could be involved.
48. C. Internal auditors.
50. Which of the following conditions most likely would pose the greatest risk in accepting a new audit
engagement?
51. A. Staff will need to be rescheduled to cover this new client.
52. B. There will be a client-imposed scope limitation.
53. C. The firm will have to hire an expert in one audit area.
54. D. the clients financial reporting system has been in place for 10 years.
55. Audit plans should be designed so that
56. A. Most of the required procedures can be performed as interim work.
57. B. Inherent risk is assessed at a sufficiently low level.
58. C. The auditor can make constructive suggestion to management.
59. D. The audit evidence gathered supports the auditors conclusion.
60. When expressing an unmodified opinion, the auditor who evaluates the audit findings should be satisfied
that the
61. A. Amount of known misstatement is documented in the management representation letter.
62. B. Estimate of the total likely misstatement is less than a material amount.
63. C. Amount of known misstatement is acknowledgement and recorded by the client.
64. D. estimate of the total likely misstatement includes the adjusting entries already recorded by the client.
65. In assessing the objectivity of internal auditors, an independent auditor should
66. A. Evaluate the quality control program in effect for the internal auditors.
67. B. Examine documentary evidence of the work performed by the internal auditors.
68. C. Test a sample of the transactions and balances that the internal auditors examined.
69. D. Determine the organization level to which the internal auditor report.
70. Reyes Merchandising Co. Maintains a staff of three full-time internal auditors. If the work of the internal
auditors is relevant to the audit, it is efficient to consider how that work may affect the audit, and the
internal auditors are found to be competent and objective, the independent auditor most likely will
71. A. Nevertheless need to make direct tests of assertion about material financial statement amounts for
which the risk of material misstatement is high.
72. B. Decrease the extent of the tests of control needed to restrict detection risk to the acceptable level.
73. C. Increase the extent of the procedures needed to reduce control risk to an acceptable level.
74. D. Not evaluate and test the work performed by the internal auditors.
75. The auditors evaluation of the reasonableness of accounting estimates
76. A. Should be in the context of individual transactions.
77. B. Consider that management bases its judgement on both subjective and objective factors,
78. C. Will be unfavourable if the estimate financial statements are based on assumption about future events
and transactions.
79. D. should be based on a attitude of conservatism.
80. A client who recently installed a new accounts payable system employees a user identification code (UIC)
and a separate password. Each UIC is a persons name, and the individuals passwords at initial log-in nor
do passwords ever expire. Which of the following statements does not reflect
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

14

81. a limitation of the clients computer-access control?


82. A. Employees can easily guess fellow employees passwords.
83. B. Employees are not required to change passwords.
84. C. Employees can circumvent procedures to separate duties.
85. D. Employees are not required to take regular vacations.
86. A CPA is gaining an understanding of the internal controls for a client that sells garden products using an
internet site. Which of the following is not likely to be found on the clients organizational chart?
87. A. The sales order department.
89. C. The warehouse.
88. B. The shipping department.
90. D. Computer processing.
91. Which of the following describes a weakness in accounts payable procedures?
92. A. The accounts payable clerk files invoices and supporting documentation after payment.
93. B. The accounts payable clerk manually verifies arithmetic on the vendor invoice.
94. C. The accounts payable system compares the receiving report to the vendor invoice.
95. D. The accounts payable manager issues purchase orders.
96. The auditor should perform test of controls when
97. A. Substantive procedures alone do not provide sufficient appropriate audit evidence at the relevant
assertion level.
98. B. Tests of details and substantive analytical procedures provide sufficient appropriate audit evidence to
support the assertion being evaluated.
99. C. The auditor is not able to obtain an understanding of internal controls.
100.
D. The owner-manager performs virtually all the functions of internal control.
101.
An auditor who has confirmed accounts receivable may discover that the sales journal was
held open past year end if
102.
A. Positive confirmations sent o debtors are not returned.
103.
B. Negative confirmations sent to debtors are not returned.
104.
C. Most of the returned negative confirmations indicate that the debtor owes a larger
balance than the amount being confirmed.
105.
D. most of the returned positive confirmations indicate that the debtor owes a smaller
balance than the amount being confirmed.
106.
Which of the following procedures would best detect a liability omission by management?
107.
A. Inquiry of senior support staff and recently departed employees.
108.
B. Review and check mathematical accuracy of financial statements.
109.
C. Review articles of incorporation and corporate bylaws.
110.
D. Review purchase contracts and other legal documents.
111.
The risk of material misstatement refers to
112.
A. Control risk and acceptable audit risk.
113.
B. Inherent risk.
114.
C. The combination of inherent risk and control risk.
115.
D. Inherent risk and audit risk.
116.
117.
118.
In a financial statement audit, inherent risk is evaluated to help an auditor assess which of
the following?
119.
A. the internal audit departments objectivity in reporting a material misstatement of a
financial statement assertion it detects to the audit committee.
120.
B. The risk the internal control system will not detect a material misstatement of a financial
statement of a financial statement assertion.
121.
C. The risk that the audit procedures implemented will not detect a material misstatement of
a financial statement assertion.
122.
D. The susceptibility of a financial statement assertion to a material misstatement assuming
there are no related controls.
123.
Auditors begin their assessments of inherent risk during audit planning. Which of the
following would not help in assessing inherent risk during the planning phase?
124.
A. Obtaining clients agreement on the engagement letter.
125.
B. Obtaining knowledge about the clients business and industry.
126.
C. Touring the clients plant and offices.
127.
D. Identifying related parties.
128.
As the acceptable audit risk is decreased, the likely cost of conducting an audit increases.
129.
130.
Acceptable audit risk is measure of the auditors willingness to accept that the financial
statements do not contain material misstatements after the audit is completed and a qualified audit report
has been issued.
131.
A. True; True
132.
B. True; False
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

15

133.
C. False; False
134.
D. False; True
135.
Related party transactions may be indicated when another company
136.
A. Subsidizes certain operating expense of the company.
137.
B. Purchases its securities at their fair value.
138.
C. loans to company at market rates.
139.
D. Has had a distributor relationship with the company for 10 years.
140.
An auditor should examine minutes of the board of directors meetings
141.
A. Through the date of the
143.
C. Only at the beginning of the
financial statements.
audit.
142.
B. Through the date of the audit
144.
D. On a test basis.
report.
145.
If the auditor were responsible for making certain that all of managements assertions is the
financial statements were absolutely correct
146.
A. Bankrupts could no longer occur.
147.
B. Bankrupts would be reduced to a very small number.
148.
C. Audits would not be much easier to complete.
149.
D. Audits would not be economically practical.
150.
Which of the following statements is true?
151.
A. Auditors have generally found that the most effective and efficiently way to conduct an
audit is to obtain some assurance for each class of transactions and for the ending balance of the related
account.
152.
B. Managements assertion follow and are closely related to the audit objectives.
153.
C. The auditors primary responsibility is to find and disclose fraudulent management
assertions.
154.
D. Assertions about presentation and disclosure deal with whether the accounts have been
included in the financial statements at appropriate amounts.
155.
Which of the following statements about the existence and completeness assertions is not
true?
156.
A. The existence and completeness assertions emphasize different concerns.
157.
B. Existence deals with overstatements and completeness deals with understatements.
158.
C. Existence deals with understatements and completeness deals with overstatements.
159.
D. The completeness assertion deals with unrecorded transactions.
160.
In testing for cutoff, the objective is to determine
161.
A. Whether all of the current periods transactions are recorded.
162.
B. Whether transactions are recorded in the correct accounting period.
163.
C. The proper cutoff between capitalizing and expensing expenditures.
164.
D. The proper cutoff between disclosing items in notes to the financial statements or in
accounts balances.
165.
Determine which of the following is most correct regarding the reliability of audit evidence?
166.
A. Information that is indirectly obtained from external sources is the most reliable audit
evidence.
167.
B. Reliability of audit evidence is dependent upon the evidence being convincing.
168.
C. Reliability of evidence refers to the amount of evidence obtained.
169.
D. An effective control system provides more reliable audit evidence.
170.
171.
When the auditor develops supporting evidence for amounts posted to account balances
with documentary evidence, that process is called
172.
A. Inquiry.
174.
C. Vouching.
173.
B. Confirmation.
175.
D. Physical examination.
176.
Narratives, flowcharts, and internal control questionnaires are three common methods of
177.
A. Documenting the auditors understanding of internal controls.
178.
B. Designing the audit manual and procedures.
179.
C. Documenting the auditors understanding of a clients organization structure.
180.
D. Testing the internal controls.
181.
Who is most likely to perpetrate fraudulent financial reporting?
182.
A. Members of the board of
184.
C. Management of the company.
directors.
185.
D. The internal auditors.
183.
B. Production employees.
186.
Which of the following is not a factor that relates to opportunities to misappropriate assets?
187.
A. Inadequate internal controls over assets.
188.
B. Presence of large amounts of cash on hand.
189.
C. Inappropriate segregation of the duties or independent checks on performance.
190.
D. Adverse relationships between management and employees.
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

16

191.
A control that relates to all parts of the IT system is called a/an
192.
A. General controls.
194.
C. Universal control.
193.
B. Systems control.
195.
D. Applications control.
196.
The auditor would design which of the following audits test to detect possible monetary
errors in the financial statement?
197.
A. Controls tests.
200.
D. Test of operating
198.
B. Analytical procedures.
effectiveness of controls over revenue and
199.
C. Risk assessment procedures.
cash.
201.
If inherent risk is increased to medium from low, test of details of balances can be reduced.
202.
203.
The extent of test of details of balances cannot be reduced when transaction-related audit
objectives have been satisfied by tests of controls or substantive tests of transactions.
A.
True; False
C.
True; True
B.
False; True
D.
False; False
204.
A document that details what the auditor will do to gather sufficient, appropriate evidence is
the
A.
Audit strategy.
C.
Audit procedure
B.
Audit program
D.
Audit risk model
205.
Analytical procedures must be performed in
A.
The planning and test of control stages.
B.
Conjunction with tests of transactions and tests of details of balance.
C.
The planning and completion stages.
D.
The planning, test of control, and completion stages.
206.
An auditor noted that the accounts receivable department is separate from other accounting
activities. Credit is approved by a separate credit department. Control accounts and subsidiary ledgers are
balanced monthly. Similarly, accounts are aged monthly. The accounts receivable manager writes off
delinquent accounts after 1 year, or sooner if a bankruptcy or other or other unusual circumstances are
involved. Credit memoranda are prenumbered and must correlate with receiving reports. Which of the
following areas could be viewed as an internal control weakness of the above organization?
207.
A. Write-offs of delinquent
209.
C. Monthly aging of receivables.
accounts.
210.
D. Handling of credit memos.
208.
B. Credit approvals.
211.
A purchasing agent places an order for inventory whenever a requisition is received from
the warehouse. The warehouse clerk issues requisitions based on predict physical counts because no
perpetual records are maintained. Numerous duplicate orders have been placed for goods previously
ordered but not received. To prevent this excess ordering, the firm should
212.
A. Keep an adequate record of open purchase orders and review it before ordering.
213.
B. Count goods in the warehouse less often.
214.
C. Use prenumbered purchase orders.
215.
D. Not use purchase requisition.
216.
Negative confirmation of accounts receivable is less effective than positive confirmation of
accounts receivable because
217.
A. A majority of recipients usually lack the willingness to respond objectively.
218.
B. some recipients may report incorrect balances that require extensive follow-up.
219.
C. The auditor cannot infer that all nonrespondents have verified their account information.
220.
D. Negative confirmations do not produce evidence that is statistically quantifiable.
221.
222.
The refusal of a clients lawyer to provide a representation on the legality of a particular act
committed by the client is ordinarily
223.
A. Sufficient reason to issue a Subject to opinion.
224.
B. Considered to be a scope limitation.
225.
C. Insufficient reason to modify the auditors report because of the lawyers obligation of
confidentiality.
226.
D. Proper grounds to withdraw from the engagement.
227.
Which of the following steps should an auditor perform first to determine the existence of
related parties?
228.
A. Examine invoices, contracts, and purchase orders.
229.
B. Request a list of related parties from management.
230.
C. Review the companys business structure.
231.
d. Review proxy and other materials filed with the SEC.
232.
In planning the audit engagement, the auditor should consider each of the following except
233.
A. The auditors independence.
234.
B. Risk of material misstatement due to fraud.
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

17

235.
C. Anticipated levels of audit risk and materiality.
236.
D. The kind of opinion (unmodified, qualified, or adverse) that is likely to be expressed.
237.
After obtaining a sufficient understanding of the entity, its environment, and internal control
in an audit of the financial statements, the auditor assesses.
238.
A. The need to apply auditing standards.
239.
B. Detection risk determining the acceptable level of inherent risk.
240.
C. Detection risk and inherent risk to determine the acceptable level of control risk.
241.
D. Control risk and inherent risk to determine the acceptable level of detection risk.
242.
243.
244.
245.
246.
247.
248.
249.
250.
251.
252.
253.
254.
255.
256.
257.
258.
259.
260.
261.
262.
263.
264.
265.
266.
267.
268.
269.
270.
271.
272.
273.
274.
275.
276.
277.
278.
279.
280.
281.
282.

283. A1 PASSERS TRAINING, RESEARCH, REVIEW & DEVELOPMENT COMPANY


284. 2nd Floor Sommerset Bldg., Lopez Jaena St. Jaro, Iloilo City
285. Tel. No.: (033) 320-2728; 09106547262
286. Email Address: a1nursingreviewic@yahoo.com.ph
287.
288. BOARD OF CERTIFIED PUBLIC ACCOUNTANT
289.
290. CERTIFIED PUBLIC ACCOUNTANT Licensure Examination SET A
291.

292.MANAGEMENT ADVISORY SERVICES


293.
294.
295.

GENERAL INSTRUCTIONS:
1. This test booklet contains 50 test questions.

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

18

296.
2. Read INSTRUCTIONS TO EXAMINEES printed on your answer sheet.
297.
3. Shade only one (1) box for each question on your answer sheets. Two or more boxes shaded will
invalidate your answer.
298.
4. AVOID ERASURES.
299.
300.
INSTRUCTIONS:
301. 1. Detach one (1) answer sheet from the bottom of your Examinee ID/Answer Sheet Set.
302. 2. Write the subject title MANAGEMENT ADVISORY SERVICES on the box provided.
303. 3. Shade Set Box A on your answer sheet if your test booklet is Set A; Set Box B if your test booklet is
Set B.
304.
_________________________________________________________________________________
_________
305.
306. USE THE FOLLOWING TO ANSWER QUESTION 1-4:
307. Little Star Products Company has a maximum productive capacity of 100,000 units per year.
Normal capacity is 90,000 units per year. Standard variable manufacturing cost are P20 per unit. Fixed
factory overhead is p450,000 per year. Variable selling expense is P10 per unit, and fixed selling
expense is P300,000 per year. The unit sales price is P50. The operating results for the year are as
follows: sales, 80,000 units; and beginning inventory, 5,000 units. All variances are written off as
additions (or deductions from) the standard cost of goods sold.
1. What is the break-even point expressed in peso sales?
a. P1,125,000
c. P1,250,000
b. P1,875,000
d. P 37,500
2. How many units must be sold to earn a net income of P50,000 per year?
a. 2 million
c. 40,000
b. 37,500
d. 25,000
3. Income under absorption costing is:
a. P900,000
c. P 925,000
b. P975,000
d. P1,975,000
4. Income uncer variable costing is:
a. P 25,000
c. P825,000
b. P875,000
d. P850,000
5. Product costs appear on the balance sheet:
a. only if goods are partially completed at the end of the period.
b. only if goods are unsold at the end of a period.
c. only if partially completed or are end of a period.
d. only in merchandising firms.
6. Data for A and Cost B are as follows:
e.
Number of
f.
Units Produced
Unit Cost
Total Cost
g. COST A
h.
1
?
P10
i.
10
?
P100
j.
100
?
P1,000
k.
1,000
?
P10,000
l. COST B
m.
1
P5,000
?
n.
10
P500
?
o.
100
P50
?
p.
1,000
P5
?
q.
r.
s. Which of the above best describes the behaviour of Cost A and B?
a. Cost A is fixed, Cost B is variable.
c. c. Both Cost A and Cost B are
b. Cost A is variable, Cost B is fixed.
variable.
d. d. Both Cost A and Cost B are fixed.
7. Differential cost can:
a. Only be fixed costs.
c. Be either fixed or variable.
b. Only be variable costs.
d. Be incremental but not decremental.
8. If Carne Company were to sell 32,000 units, the total expected cost per units would be:
a. P75,000
c. P80,000
b. P78,000
d. P77,000
9. If Carne Company were to sell 40,000 units, the total expected cost per unit would be:

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

19

a. P2.50
c. P2.13
b. P2.25
d. P1.88
10. John Johnson decided to leave his former job where he earned P12 per hour to go to a new job where
he will earn P13 per hour. In the decision process, the former wage of P12 per hour would be
classified as a(n):
a. Sunk cost.
c.Fixed cost.
b. Direct cost.
d. Opportunity cost.
11. The Standards of Ethical Conduct for Management Accountants developed by the Institute of
Management Accountants contain a policy regarding confidentially that requires management
accountants to refrain from disclosing confidential information acquired in the course of their work:
a. Except when authorized by management.
b. In all situations.
c. Except when authorized by management, unless legally obligation to do so.
d. In all cases not prohibited by law.
12. During the month of January, direct labor cost totalled P17,000 and direct labor cost was 60% of prime
cost. If total manufacturing costs during January were P82,000 the manufacturing overhead was:
a. P11,333
c. P28,333
b. P53,667
d. P65,000
13. Samantha Galloway is a managerial accountant in the accounting department of Mustang Industries,
Inc. Samantha has just discovered evidence that some of the corporations marking mangers have
been wrongfully inflating their expense reports in order to obtain higher reimbursements from the firm .
According to the Institute of Management accountants Standards of Ethical Conduct, what should
Samantha do upon discovering this evidence?
a. notify the controller.
b. notify the marking managers involved.
c. notify the president of the corporation
d. Ignore the evidence because she is not part of the Marking Department.
14. Which of the following statements is true when referring to fixed cost?
a. Committed fixed costs arise from the annual decisions by management.
b. As volume increases, unit fixed cost and total fixed cost will change.
c. Fixed costs increase in total throughout the relevant range
d. Discretionary fixed costs can often be reduced to zero for short periods of the without seriously
impairing the long-run goals of the company
15. A P2.00 increase in a products variable expense per unit accompanied by a P2.00 Increase in its
selling price per unit will:
a. decrease the degree of operating leverage.
b. decrease the contribution margin.
c. have no effect on the break-even volume (In units).
d. have no effect on the contribution margin ratio.
16. The following information relates to the break-even point at Pezzo Corporation:
17.
Sales pesos
P120,000
18.
Total fixed expenses
P30,000
19. If Pezzo wants to generate net operating income of p12, 000, what will its sales pesos have to be?
a. P132,000
c. P168,000
b. P136,000
d. P176,000
e.
20. The contribution approach income statement:
a. Organizes costs on a function basis.
b. Provides owners with more cash flows.
c. Is particularly helpful to the manager in planning and decision making.
d. Provides a gross margin figure from which selling and administrative expenses are deducted.
f.
21. Minist company sells a single product at a selling price of p15.00 per unit. Last year, the companys
sales revenue was P225, 000 and its net operating income was P18,000.
g.
h. If fixed expenses totalled P72,000 for the year, the break-even point in unit sales was
a.15,000
c. 14,100
b.9,000
d.12,000
22. A single- product company prepares income statements using both absorption and variable costing
methods. Manufacturing overhead cost applied per unit produced under absorption costing in year 2
was the same as in year 1. The year 2 variable costing statement reported a profit whereas the year 2
absorption costing statement reported a loss. The difference in reported income could be explained by
units produced in year 2 being:
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

20

a. Less than units sold in year 2.


b. Less than the activity level used for allocating overhead to the product.
c. In excess of the activity level used for allocating overhead to the product.
d. In excess of units sold in year 2
23. Which of the following costs should not be included in product costs for internal management reports
that are used for decision-making?
a. Cost of unit-level activities.
d. Costs of organization-sustaining
b. Costs of batch-level activities.
activities
c. Costs of product-level activities.
24. If all sub-variances are calculated for labor, which of the following cannot be determined?
a. Labor rate variance.
c. Reason for the labor variances.
b. Actual hours of labor used.
d. Efficiency of the labor force.
25. Under variable costing:
a. Net operating income will tent to move up and down in response to changes in levels of
production.
b. Inventory costs will be lower than under absorption costing.
c. Net operating cost income will tend to vary inversely with production changes.
d. Net operating income will always be higher than under absorption costing.
26. Hettich Corporation uses an activity-based costing system with the following three activity cost pools:
27.
28.
Activity Cost Pool
Total Activity
29.
Fabrication
20,000 machine-hours
30.
Order processing
200 orders
31.
Other
Not applicable
32. The other activity cost pool is used to accumulate costs of Idle capacity and organization- sustaining
costs.
33.
34. The company has provided the following data concerning its costs:
35.
Wages and salaries
P480,000
36.
Depreciation
120,000
37.
Occupancy
200,000
38.
Total
P800,000
39.
40. The distribution of resource consumption across activity cost pools is given below:
41.
42.
Fabrication
Order processing
Other
Total
43. Wages and salaries
55%
20%
25%
100%
44.
Depreciation
10%
45%
45%
100%
45.
Occupancy
25%
40%
35%
100%
46.
47.
The activity rate for the Order processing activity cost pool is closest to:
a.P1,400 per order
c. P1,150 per order
b.P1,600 per order
d.P800 per order
48. The following information relates to Snowbird Corporation:
49.
50.
Sales at the break-even point
P312,500
51.
Total fixed expenses
P250,000
52.
Net operating income
P150,000
53.
54.
What is snowbirds margin of safety?
a. P62,500
c. P100,000
b. P187,500
d. P212,500
55. Which of the following is true of a company that uses absorption costing?
a. Net operating income fluctuates directly with changes in sales volume.
b. Fixed production and fixed selling costs are considered to be product costs.
c. Unit product costs can change as a result of changes in the number of units manufactured.
d. Variable selling expenses are included in product costs.
56.
57. USE THE FOLLOWING TO ANSWER QUESTIONS 26-30:
58. The Dresden Company uses standard costing for the single product the company makes and sells.
The following data are for the month of April:
Actual cost of direct material purchased and used: P62,400
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

21

Material price variance: P4,800 unfavourable


Total materials variance: P14,400 unfavourable
Standard cost per pound of material: P6
Standard cost per direct labor hour: P8
Actual direct labor hours: 3,800 hours
Labor efficiency variance: P1,600 favourable
Standard number of direct labor hour per unit of product: 2
Total labor variance: P680 unfavourable

59.
60. The total number of units produced during April was:
a. 8,000
c. 2,000
b. 12,000
d. 3,800
61. The standard quality of material allowed to produce one unit of product was:
a. 1 pound
c. 6 pounds
b. 4 pounds
d. 2 pounds
62. The actual material cost per pound was:
a. P6.50
c. P5.00
b. P6.00
d. P7.20
63. The actual direct labor rate per hour was:
a. P16.00
c. P8.00
b. 6.50
d. 8.60
64. The labor rate variance was:
a. P2,280 favourable
c. P920 favourable
b. P2,280 unfavourable
d. P920 unfavourable
65. The nut house, Inc, sells three types of nuts: almonds, cashews, and walnuts. Ten thousand cans of
nuts were sold in 2011, and the amount of walnuts sold were twice as much as the number of cans of
cashews, whereas almond sakes were one-half the amount of cashew sales. Fixed costs were
P37,680, and the unit variable costs were as follow:
66.
67.
Product
Unit Sales Price
Unit Variable Cost
68.
Almond
P8
P4
69.
Cashews
10
5
70.
Walnuts
6
4
71.
72.
The company plans to earn profit of P6,280. The overall break-even unit sales is:
a. 10,000
c. 12,000
b. 14,000
d. 6,857
e.
f.
73. Qualitative factors:
a. Generally are easily measured quantitative terms.
b. Are generally irrelevant for decision making.
c. May include either financial or nonfinancial information
d. Include customer satisfaction.
74. Lacob Corporation is a wholesaler that sells a single product. Management has provided the following
cost data for two levels of monthly sales volume. The company sells the product for P103.40 per unit.
e. Sales volume (units)
5,000
6,000
f. Cost of sales
P315,500
P378,000
g. Selling, general, and administrative cost
P162,500
P177,600
h.
i.
The best estimate of the total contribution margin when 5,300 units are sold is:
a. P 56,710
c. P 41,340
b. P133,560
d. P213,590
75. Of the following which is the best reason for using activity-based costing?
a. To keep better track of overhead costs
b. To more accurately assign overhead costs to cost pools so these cost are better controlled.
c. To better assign overhead costs to products.
d. To assign indirect service overhead costs to direct overhead cost pools.
76. Stead Company produces a single product. Last year, the companys net operating income computed
by the absorption costing method was P6,400, and its net operating income computed by the variable
costing and method was P9,100. The companys unit product cost was P17 under variable costing and
P20 under absorption costing. If the ending inventory consisted of 2,100 units the beginning inventory
in units must have been:
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

22

a. 1,200
c. 3,000
b. 2,100
d. 4,800
77. Black Tool Company has a production capacity of 1,500 units per month, but current production is only
1,250 units. The manufacturing costs are P60 per unit and marking costs are P16 per unit. Doug Hall
offers to purchase 250 units at P76 each for the next five months. Should Black accept the one-timeonly special order if only absorption-costing data are available?
a. Yes, good customer relations are essential.
b. No, the company will only break even.
c. No, since only the employees will benefit.
d. Yes, since operating profits will most likely increase.
78. If Konrades engine Company purchases 1,000 TE456 parts from the outside supplier per month, then
its monthly avoidable costs (costs that will no longer be incurred) total:
a. P 82,000
c. P 50,000
b. P 98,000
d. P100,000
79. If Konrades Engine Company purchases 1,000 Te456 parts from the outside supplier per month, then
its monthly operating income will:
a. Increase by P2,000
c. Decrease by P3,000
b. Increase by P80,000
d. Decrease by P85,000
80. The maximum price that Konrades Engine Company should be willing to pay the outside supplier is:
a. P80 per TE456 part
c. P98 per TE456 part
b. P82 per TE456 part
d. P100 per TE456 part
81. The sum of the material price variance (calculated at point of purchase) and material quality variance
equals.
a. The total cost variance.
c. The material mix variance.
b. The material yield variance
d. No meaningful number.
82. In activity-based costing, final cost allocations assign costs to
a. Departments
c. Products
b. Processes
d. Activities
83. King Company produces a single product. During March, the company had net operating income
under absorption costing that was P3,500 lower than under variable costing. The company sold 7,000
units in March, and its variable costs were P7 per unit of which P3 was variable selling expense. If
fixed manufacturing overhead was P2 per unit under absorption costing then how many units did the
company produce during March?
a. 5,250 units
c. 6,500 units
b. 8,750 units
d. 6,125 units
84. Engagements should be adequately planned, supervised, and controlled. Controlling involves the
measurement of progress in attaining the engagement plan and objectives. At significant engagement
points, progress should be measured in item of
a. Time schedule, accomplishments, and quality of work.
b. Accomplishment, time schedule, and expenses incurred.
c. Quality of work, number of reports prepared, and time schedule.
d. Accomplishments, number of personnel who played a role in the engagement and attendance of the
participants in the engagement.
85. A company that produces a single product had a net operating income of P85,500 using variable costing
and a net operating income of P90,000 using Absorption costing. Total fixed manufacturing overhead was
P150, 000 and production was 100,000 units.
86. Between the beginning and the end of the year, the inventory level:
a. Increase by 4,500 units
c. Increase by 3,000 units
b. Decrease by 4,500 units
d. Decrease by 3,000 units
87. Which of the following is least likely to be considered an advantage of a database?
a. Easy to store large qualities of information.
b. Easy to retrieve information quickly.
c. Easy to organized and reorganize information.
d. Easy to distribute information to every possible user.
88. Which of the following market features is likely to cause a surplus of a particular product?
a. A monopoly
c. A price ceiling
b. A price floor
d. A perfect market
89. All of the following are ways that companies in developed countries generally amy complete with
companies in developing countries except
a. Technology.
c. Quality
b. Customer service.
d. Low-cost resources.
90. Laptop computers provide automation outside of the normal office location. Which of the following
would provide the least security for sensitive data stored on a laptop computer?
a. Encryption of data files on the laptop computer.
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 23

b. Setting up a password for the screensaver program on the laptop computer.


c. Using a laptop computer with a removable hard disk drive.
d. Using a locking device that can secure the laptop computer to an immovable object.
91. Accounting systems are designed to attain some objectives. Which of the following cannot be
considered an objective of accounting systems?
a. To provide a means by which interested parties may be given information on the financial
position and results of operations of a business organization.
b. To protect the business owners safeguard their assets.
c. To facilitate management planning control and decision-making.
d. To accomplish the different routinary administrative activities of the business organization.
92. The following information relates to Zinc Corporation for last year:
93.
94.
Sales
P500,000
95.
Net operating income
25,000
96.
Degree of operating leverage
5
97.
98.
Sales at Zinc are expected to be P600,000 next year. Assuming no change in cost
structure,
99.
This means that net operating income for next year should be:
a. P30,000
b. P45,000
c. P50,000
d. P125,000
100.
101.
102.
103.
104.
105.
106.
107.
108.
109.
110.
111.
112.
113.
114.
115.
116.
117.
118.
119.
120.
121.
122.
123.
124.
125.
126.
127.
128.
129.
130.

131.

A1 PASSERS TRAINING, RESEARCH, REVIEW & DEVELOPMENT COMPANY


132.
2nd Floor Sommerset Bldg., Lopez Jaena St. Jaro, Iloilo City
133.
Tel. No.: (033) 320-2728; 09106547262
134.
Email Address: a1nursingreviewic@yahoo.com.ph
135.
BOARD OF CERTIFIED PUBLIC ACCOUNTANT
137.
CERTIFIED PUBLIC ACCOUNTANT Licensure Examination SET A
136.

138.
139.

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

24

140. AUDITING PROBLEMS


141.
GENERAL INSTRUCTIONS:
142.
1. This test booklet contains 60 test questions.
143.
2. Read INSTRUCTIONS TO EXAMINEES printed on your answer sheet.
144.
3. Shade only one (1) box for each question on your answer sheets. Two or more boxes shaded will
invalidate your answer.
145.
4. AVOID ERASURES.
146.
147.
INSTRUCTIONS:
148. 1. Detach one (1) answer sheet from the bottom of your Examinee ID/Answer Sheet Set.
149. 2. Write the subject title AUDITING PROBLEMS on the box provided.
150. 3. Shade Set Box A on your answer sheet if your test booklet is Set A; Set Box B if your test booklet is
Set B.
151.
_________________________________________________________________________________
_________
152.
153.
PROBLEM NO.1
154.
155.
Anyang corp. invested its excess cash in marketable equity securities during 2012. The
securities do not qualify as financial asset held for trading. Anyang Corp. Has made an irrevocable
election to present in other comprehensive income subsequent changes in fair value of its investment
securities. As of December 31,2012 the companys securities portfolio consisted of the following:
156.
157.
Investee Company
Share
Cost
Fair Value
158.
Kandong, inc.
30,000
P1,350,000
P1,275,000
159.
Egoy corp.
60,000
4,500,000
4,830,000
160.
Yoga Enterprises
60,000
6,480,000
6,900,000

161.
Totals
P12,330,000
P13,005,000
162.
163.
During the year 2013, Anyang Corp. Sold 60,000 shares of Egoy Corp. For P4,800,000 and
purchased 60,000
addition shares of kingdom, Inc. And 30,000 shares of Company.
164.
On December 31,2013, Anyang Corps portfolio of securities comprised the following:
165.
166.
Investee Company
Shares
Cost
Fair
Value
167.
Kandong, Inc.
30,000
P1,350,000
P1,500,000
168.
Kandong, Inc.
60,000
3,900,000
4,350,000
169.
Kongga Company
30,000
1,560,000
1,440,000
170.
Yoga Enterprises
60,000
6,480,000
2,100,000
171.
Totals
P13,290,000
P9,390,000
172.
173.
During the year 2014, Anyang Corp. Sold all the Kandong, Inc. Share. Also, 15,000 shares
of Kongga Company were sold at a loss of P270,000. The net realized gain on sale of securities in
2014 amounted to P1,440,000. On December 31,2014, Anyang Corps portfolio of securities consisted
of the following:
174.
Page 1
175.
AUDITING PROBLEMS
176.
Investee Company
Value
177.
Yoga Enterprises
P12,600,000
178.
179.
Kongga Company
540,000

Shares
60,000

Cost

Fair

P6,480,000
15,000

780,000

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

25

180.
Totals
P13,140,000

P7,260,000

181.
1. For the year ended December 31,2013, Anyangs statement of comprehensive Income should report
unrealized loss of
A. P1,3,000,000
C. P3,915,000
B. P1,190,000
D. P4,245,000
2.
3. What amount of unrealized loss should be reported in Anyangs December 31,2013 Statement of Changes
in Equity?
A. P3,240,000
C. P4,245,000
B. P3,570,000
D. P3,900,000
4. How much was received by Anyang from the sale of its investment in Kandong securities In 2014?
A. P6,960,000
C. P7,020,000
B. P7,560,000
D. P8,280,000
5. Anyangs statement of Financial Position should report investment in equity securities of
6.
Dec. 31,2014
Dec. 31,2013
Dec. 31,2012
7.
A.
P12,330,000
P13,290,000
P7,260,000
B.
13,005,000
9,390,000
13,140,000
C.
12,330,000
9,390,000
7,260,000
D.
13,005,000
13,290,000
13,140,000
8. What amount should be reported as unrealized gain in Anyangs Statement of Changes in Equity for 2014?
A. P6,420,000
C. P6,960,000
B. P5,880,000
D. P14,760,000
E.
F. PROBLEM NO. 2
G. DARWIN CORP., a manufacturer of computer part5s, has been experiencing growth in the
demand for its products over the last several years. This prompted the company to obtain
addition manufacturing. A real estate firm located an available factory and used machinery from
production facility and Darwin agreed to purchase the factory and used machinery from Quezon
Company on October 1, 2011. Renovations were necessary to convert the factory for Darwins
manufacturing use.
H. The terms of the agreement required Darwin to pay Quezon P4,500,000 when renovations
started on January 1,2012, with the balance to be paid as renovations were complete. The
overall purchase price for the factory and machinery was P36,000,000. The building renovations
were contracted to Mallbornes Construction company at P9,000,000. The payments made as
renovation progressed during 2012 are shown below. The factory was placed in service on
January 1, 2013.
I.
J.
QUEZON
MALLBORNES
K. January 1
P 4,500,00
P 2,700,000
L. April 1
8,100,000
2,700,000
M.
N. October 1
9,900,000
3,600,000
O. December 1
13,500,000
3,600,000
P.
P36,000,000
P9,000,000
Q.
R. On January 1, 2012, Darwin obtained a 2-year, P9 million loan with 12% interest rate to finance
the renovation of the acquired factory. This is Darwins only outstanding loan during 2012.
S.
T. Darwins policy regarding purchases of this nature is to use the appraisal value of the land for
book purposes and prorate the balance of the purchase price over the remaining items. The
building had originally cost Quezon P27,000,000 and had a net book value of P4,500,000 ,
while the machinery originally cost P11,250,000 and had a net value of P3,600,000 on the date
of sale. The land was recorded on Quezons books at 3,600,000.
U.
V. The following values were determined based on appraisal conducted by independent appraisers
at the time acquisition.
W.
Land
P26,100,000
X.
Building
9,450,000
Y.
Machinery
4,050,000
Z.
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

26

AA.Gino G. Nario, Darwins chief engineer estimated that the renovated plant would be used for 15
years, with an estimate residual value of P27,700,000. Nario estimated that the productive
machinery would have a remaining useful life of 5 years and residual value of P270,000.
Darwins depreciation policy is to apply the 200% declining balance method for machinery and
the 150% declining balance method for the plant. One-half years depreciation is taken in the
year the plant is placed in service and one-half is allowed when the property is disposed of or
retired.
AB.
AC.
AD.
AE.Determined the amounts to be recorded on the books of Darwin corp. As of December 31, 2012,
for each of the following properties.
AF.
9. Land
A. P23,727,000
C. P26,100,000
B. P27,180,000
D. P32,272,000
10. Building
A. P17,010,000
C. P9,670,800
B. P18,670,800
D. P15,930,000
11. Machinery
A. P3,681,900
C. P4,005,900
B. P3,294,000
D. P2,970,000
E.
F. Calculate the December 31,2014 net book value of the following:
G.
12. Building
A. P14,312,700
C. P13,778,100
B. P15,351,525
D. P14,543,550
13. Machinery
A. P1,425,600
C. P1,296,000
B. P1,069,200
D. P1,188,000
E.
F.
G. PROBLEM NO.3
H. Presented below are three(3) Independent cases relating to the audit of shareholders equity.
I. Answer the question/s at the end of each case.
J.
K. 1. KANDABA COMPANY began operations on January 1, 2012, by Issuing at P15 per share
one-half of the 480,000 ordinary shares (P1 par value) that had been authorized for issue. In
addition, Kandaba has 250,000 6% preference shares (P5 par value) authorized. During 2012,
Kandaba reported net income of P735,00 and declared dividends of P112,250.
L.
M. During 2013, Kandaba completed the following transactions:
N.
O. Jan. 10
Issued an additional 35,000 ordinary shares for P16.50 per share.
P. Apr. 2
Issued 80,000 preference shares for P7 per share.
Q. July 21
Authorized the acquisition of a custom-made machine to be delivered in January
2014.
R.
Kandaba appropriated p147,500 of retained earnings for the purchase of the machine.
S. Oct. 25
Issued an addition 20,000 preference shares for P10 per share.
T. Dec. 31
Reported P732,000 of net income and declared a dividend of P420,000 to
shareholders of
U.
Record on January 31,2014, to be paid on February 4,2014.
14. What is the total shareholders equity on December 31, 2013?
A. P4,222,750
C. P5,724,750
B. P5,872,250
D. P6,019,750
15. What is the unappropriated retained earnings balance on December 31, 2013?
A. P4,807,250
C. P4,534,750
B. P4,222,750
D. P4,387,250
E.
F. 2.BULDOG CO. Is authorized to issue 300,000 of P2 par value ordinary shares. The company
has the following transactions:
a) Issued 60,000 shares at P32 per share; receive cash.
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

27

b) Issued 1,000 shares, selling at P36 per share, to lawyers for services in connection with the
organization of the corporation. The value of the legal services was P35,000.
G.
c) Issued 1,500 shares, valued objectively at P33,000, to the employees instead of paying them
cash wages.
d) Issued 137,500 shar5es in exchange for a building value at P885,000 and land valued at
P24,000. (The building was originally acquired by the investor for P750,000 and has P300,000
of accumulated depreciation; the land WAS ORIGINALLY acquired for P90,000.)
e) Received cash for 29,500 shares issued at P38 per share.
16. The statement of financial position will rep[ort share premium of
A. P3,777,000
C. P3,775,000
B. P5,675,000
D. P3,776,000
E.
F. 3. TAGOGO COMPANY has been paying regular quarterly dividends of P1.50 and wants to pay
the same amount in the third quarter of 2013. The following information relates to the companys
equity:
G.
H. Jan. 1
Shares outstanding, 500,000; P2 par (900,000 shares authorized).
I. Feb. 15
Issued 30,000 new shares at P10.50.
J. Mar. 31
Paid quarterly dividends of P1.50 per share.
K. May 12
Converted P1,000,000 bonds tom ordinary shares at the rate of 50 shares per
L.
P1,000 bond.
M. June 15
Issued a 10% share dividend.
N.
30
Paid quarterly dividends of P2 per share.
17. What is the total amount that Tagogo will have to pay in dividends in the third quarter in order to pay P2 per
share?
A. P1,276,000
C. P1,260,000
B. P1,160,000
D. P1,060,000
18. What is the total amount of dividends to be distributed during the year assuming no equity transactions
occur after June 30?
A. P4,640,000
C. P4,240,000
B. P5,104,000
D. P4,888,000
E.
F. PROBLEM NO.4
G.
Presented below are the condensed income statements of LAROSA CORPORATION for the
years
H.
Ended December 31,2013 and 2012.
I.
J.
2013
2012
K.
Sales
P7,500,000
P7,350,000
L.
Cost of goods sold
5,025,000
4,950,000
M.
Gross Income
2,475,000
2,400,000
N.
Operating expenses
1,012,500
975,000
O.
Operating income
1,462,500
1,425,000
P.
Gain on sale of division
300,000
--Q.
1,762,500
1,425,000
R.
S.

Income tax expenses (30%)


Net Income

528,750
P1,233,750

427,500
P997,500

T.
U.
On October 10, 2013, Larosa entered into an agreement to sell the assets of one of its
geographical segments. The geographical segment comprises operations and cash flows that can be
clearly distinguished operationally and for financial reporting purposes, from the rest of the company.
The segment was sold on December 31, 2013, for P2,625,000. The book value of the of the segments
assets was P2,325,000. The segments contribution to Larosas operating income before tax for each
for year was as follows:
V.
W.
2013
P170,625 loss
X.
2012
P121,875 income
19. What amount should be reported as income from continuing operations for 2012?
A. P912,187
B. P997,500
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

28

C. P937,782
D. P1,122,188
20. What amount should be reported as income from continuing operations for 2013?
A. P904,312
C. P1,143,187
B. P933,188
D. P1,233,750
21. What amount should be reported as income (loss) from discontinued operations for 2013?
A. P170,625
C. (P119,438)
B. P210,000
D. P90,562
22. Assume that by December 31,2013, the segment had not yet been sold but was considered held for sale.
The fair value of the segments assets on December 31 was P2,625,000. The post-tax income (loss) from
discontinued operations for 2013 should be
A. (P90,562)
C. 90,562
B. 119,438
D. (P119,438)
23. Assume that by December 31,2013, the segment had not yet been sold but was considered held for sale.
The fair value of the segments assets on December 31 was P1,875,000. The post-tax income (loss) from
discontinued operations for 2013 should be
A. P90,562
C. (P119,438)
B. P1,193,062
D. (P434,438)
E.
F.
G. PROBLEM NO.5
H. ACERO CORP. Was Incorporated on January 2, 2012. The corporations financial statements
for its first years operations were not examined by a CPA. You have been engaged to audit
the financial statements for the year ended December 31, 2013, and your audit is substantially
completed. The corporations trial balance appears below.
I. Acero Corp.
J. TRIAL BALANCE
K. December 31,2013
L.
M.
Debit
Credit
N. Cash
P 450,000
O. Accounts receivable
2,190,000
P. Allowance for doubtful accounts
P43,800
Q. Inventories
1,506,000
R. Machinery and equipment
3,570,000
S. Accumulated depreciation
786,000
T. Patents
3,846,000
U. Leasehold improvements
900,000
V. Prepaid expenses
1,350,000
W. Goodwill
900,000
X. Licensing agreement No.1
1,800,000
Y. Licensing agreement No.2
1,680,000
Z. Accounts payable
2,190,000
AA. Unearned revenue
518,400
AB. Share capital
9,000,000
AC.
Retained earnings, January 1,2013
4,771,800
AD.
Sales
21,600,000
AE. Cost of goods sold
14,250,000
AF. Selling and administrative expenses
5,583,000
AG.
Interest expense
285,000
AH.
Loss on extinguishments of dept
600,000
AI.
Totals
P38,910,000
P38,910,000
AJ.
AK.
AL.
AM.
The following information relates to accounts that may yet require adjustment.
AN.
1. Patents for Aceros manufacturing process were acquired January 2, 2013, at a cost of P2,805,000. An
additional P1, 041,000 was spent on December 29,2013, to improve machinery covered by the patents
and charged to the Patents account. Depreciation on property, plant, and equipment has been properly
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

29

recorded for 2013. Acero uses the straight-line method for all depreciation and amortization and the
legal life on its patents.
AO.
2. On January 3, 2012, Acero purchased Licensing Agreement No.1, which was believed to have an
indefinite useful life. The balance in the Licensing Agreement No.1 account includes its purchase price
of P1, 710,000 and expenses of P90,000 related to the acquisition. On January 1,2013, Acero
purchases Licensing Agreement No.2, which has a life expectancy of 10 years. The balance in the
Licensing Agreement No.2 account includes its P1, 620,000 purchase price and P180,000 in acquisition
expenses, but it has been reduced by a credit of P120,000 for the advance collection of 2014 revenue
from the agreement.
AP.
AQ.
In late December 2012, an explosion caused a permanent reduction in the expected
revenue-producing value of Licensing Agreement No.1 and in January 2014, a flood caused
additional damage that rendered the agreement worthless. The recoverable amount of
Licensing Agreement No.1 was determined to be P720, 000 at December 31, 2012.
AR.
3. The balance in the Goodwill account represents amount paid on December 30, 2012, for a four-year
advertising program, estimated to assist in creasing Aceros sales.
AS.
4. The Leasehold Improvements account includes (a) the P450,000 cost of improvements with a total
estimated useful life of 12 years, which Acero as tenant made to leased premises in January 2012, and
movable assembly line equipment costing P450,000 that was installed in the leased premises in
December 2013. Acero paid its rent in full during 2013. A 10-year non-renewable lease was signed
January 3, 2012, for the leased building that Acero used in manufacturing operations.
AT.
24. What is the carrying value of Patents on December 31, 2013?
A. P3,846,000
C. P3,653,700
B. P2,664,750
D. P2,805,000
25. What amount of impairment loss should be recognized in 2012?
A. P 0
C. P1,080,000
B. P1,710,000
D. P990,00
26. What is the carrying value of Licensing Agreement no.2 on December 31,2013?
A. P1,800,000
C. P1,728,000
B. P1,920,000
D. P1,620,000
27. What is the carrying value of Licensing Improvements on December 31, 2013?
A. P375,000
C. P360,000
B. P405,000
D. P720,000
E.
28. What is the adjusted balance of the Machinery and Equipment account on December 31, 20-13?
A. P3,570,000
C. P4,275,000
B. P5,061,000
D. P4,611,000
E.
F.
G. PROBLEM NO.6
H. Presented below are two (2) independent situations. Answer the questions at the end of each
situation.
I.
J. On December 31, 2012, BANTAY COMPANY acquired a piece of equipment from Sendong
Company by issuing a P600, 000, note payable in full on December 1, 216. Bantays credit rating
permits it to borrow funds from its several lines of credit at 10%. The equipment is expected to have
a 5-year life and a P75,000 salvage value.
29. What is the equipments carrying value on December 31, 2015?
A. P208,922
C. P298,749
B. P163,922
D. P163,922
30. What is the note payables carrying value December 31, 2015?
A. P545,453
C. P298,749
B. P465,866
D. P163,922
E.
F. ONDONG COMPANY purchased machinery on December 31, 2012, paying P120,000 down
and agreeing to pay the balance in four equal instalments of P90,000 payable each
December 31. Implicit in the purchase price is an assumed interest of 12%.
G.
31. What is the cost of the machinery purchased on December 31 2012?
A. P273,362
B. P393,362
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

30

C. P480,000
D. P349,624
32. How much interest expense should reported in Ondongs Income statement for the year ended December
31, 2014?
A. P18,253
C. P25,940
B. P32,803
D. P64,060
33. What is the carrying value of the note at December 31,2015?
A. P152,105
C. P180,000
B. P216,165
D. P80,358
E.
F.
G. PROBLEM NO.7
H. LYKA COMPANYs net income for the past three years are presented below;
I.
2013
2012
2011
J.
P480,000
P450,000
P360,000
K.
L. During the 2013 year-end audit, the following items come to your attention:
1. Lyka bought a truck on January 1, 2010 for P196,000 with a P16,000 estimated salvage value and a
six-year life. The company debited an expense account and credited cash on the purchase date for the
entire cost of the asset. (Straight-line method)
M.
2. During 2013, Lyka changed from the straight-line method of depreciating its cement plant to the
double-declining balance method. The following computations present depreciation on both bases:
N.
O.
2013
2012
2011
P.
Straight-line
36,000
36,000
36,000
Q.
Double-declining
46,080
57,600
72,000
R.
S.
The net income for 2013 was computed using the double-declining balance method, on the
January 1, 2013 book value over the useful life remaining at the time. The depreciation recorded in
2013 was
P72,000.
T.
3. Lyka, in reviewing its provision for uncollectible during 2013, has determined that 1% is the appropriate
amount of bad debt expense to be charged to operations. The company had use 1/2 of 1% as its rate
in 2012 when the expense had been P18,000 and P12,000, respectively. The company recorded bad
debt expense under the new rate for 2013. The company would have recorded P6,000 less of bad
debt expense on December 31, 2013 under the old rate.
U.
34. What is the entry necessary to correct the books for the transaction in part 1 of the problem, assuming that
the books for the current year are still open?
V.
A. Equipment
196,000
W.
Depreciation expense
30,000
X.
Accumulated depreciation
120,000
Y.
Retained earnings
106,000
B. Equipment
196,000
Z.
Accumulated depreciation
90,000
AA.
Retained earnings
106,000
C. Equipment
166,000
AB.
Accumulated depreciation
30,000
AC.
Retained earnings
136,000
D. Equipment
196,000
AD.
Depreciation expense
30,000
AE.
Accumulated depreciation
60,000
AF.
Retained earnings
166,000
35. What is the correct net income to be reported in 2011?
A. P330,000
C. P360,000
B. P336,000
D. P294,000
36. What is the correct net income to be reported in 2012?
A. P398,400
D. P480,000
B. P420,000
E.
C. P441,600
37. What is the correct net income to be reported in 2013?
A. P510,000
B. P428,400
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

31

C. P444,000
D. P450,000
38. Which of the following is (are) the proper time period(s) to record the effects of a change in accounting
estimate?
A. Current period and prospectively
C. Retrospectively only
B. Current period and retrospectively
D. Current period only
E.
F. PROBLEM NO.8
G.
H. At the beginning of 2013, an entity grants 50 share option each to 500 employees. The grants is
conditional upon the employees remaining in the entitys employ during a vesting period of three
years.
I.
J. The exercise price at grant date is estimated at P60. However, the exercise price drops to P40 if
the entitys earning increase by at least an average of 10% per year over the three-year period.
K.
L. On grant date, the entity estimates that the fair value of the share options, with an exercise price of
P40, is P20 per option. If the exercise price is P60, the entity estimates that the share options have
a fair value of P18 per option.
M.
N.
O.
P. The following actual events occurred:
Q.
R. 2013
30 employees have left. The entity expects on the basis of a weighted average probability that a further
30 employees will leave during 2014 and 2015, respectively.
The entitys earning increase by 12% and the entity expects that earning will continue to increase at this
rate over the next two years. The entity therefore expects that the earnings target will be achieved, and
hence the share options will have an exercise price of P40.
S. 2014
At year end, a further 35 employees have resigned. The entity expects that a further 30 employees will
leave during 2015.
The entitys earning increased by 13% and it continues to expect that the earning target will be
achieved.
T. 2015
A further 28 employees have left by the end the year.
Due to a general decrease in market demand, the entitys earnings increased by only 3% because the
earnings target was not achieved , the 50 vested share options for each employee have exercise price
of P60.
U.
V. Base on the preceding information, determine the following:
W.
39. Compensation expense for 2013
A. P315,000
C. P136,667
B. P96,300
D. P122,100
40. Compensation expense for 2014
A. P96,300
C. P136,667
B. P133,333
D. 135,000
41. Compensation expense for 2015
A. P16,667
C. P133,333
B. P135,000
D. P96,300
42. Share options outstanding at the end of 2014
A. P270,000
C. P133,333
B. P405,000
D. P229,633
43. Share options outstanding at the end of 2015
A. P405,000
C. P410,000
B. P0
D. P366,000
E.
F. PROBLEM NO.9
G. In making the first audit of the Delivery Equipment account of DELTA CORPORATION as of
December 31, 2013, you encounter the encounter the following facts.
H.
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

32

P.

I.
DELIVERY EQUIPMENT
J. Date Particulars
K. 1/1/11 Trucks 1,2,3, and 4
L. 3/15/12 Replacement of truck 3 tires
M. 7/1/12 Truck 5
N. 7/10/12 Reconditioning of truck 4, which
O.
was damaged in a collision
9/1/12
Insurance recovery on Truck 4 accident
Q.
R.
S.
T.
U.
V.

10/1/12 Sale of Truck 2


4/1/13 Truck 6
5/2/13 Repainting of Truck 4
6/30/13 Truck 7
12/1/13 Cash received on lease of Truck 7

Debit
P3,200,000
25,000
800,000

Credit

35,000

1,000,000
27,000
720,000

P 33,000
600,000
150,000
22,000

W. Accumulated Depreciation
X.
Particulars
Debit
Depreciation expense
Depreciation expense
Depreciation expense

Y. Date
Credit
Z. 12/31/13
P300,000
AA.12/31/12
300,000
AB.12/31/13
300,000
AC.
AD.
Additional Information:
1. Only July 1, 2012 Truck 3 was traded in for a new truck, Truck 5, costing P850,000; the selling party
allowed a P50,000 trade in value for the old truck.
2. On April 1,2013, Truck 6 was purchased for P1,000,000; Truck 1n and cash of P1,000,000; Truck 1
and cash of P850,000 being given for the new truck.
3. You are instructed by the senior in-charge of the audit to accept the depreciation rate of 20% by unit
basis.
4. Unit cost of Truck 1 to 4 is at P800, 000 each.
44. What is the correct cost of Truck No. 5?
A. P850,000
C. P900,000
B. P800,000
D. P560,000
45. What is the correct depreciation expense for 2012?
A. P725,000
C.P605,000
B. P305,000
D.P600,000
46. What is the correct depreciation expense for 2013?
A. P552,000
C. P712,000
B. P592,000
D. P300,000
47. The entry to correct the depreciation charges for the years 2011 through 2013 should include a credit to
Accumulated Depreciation of
A. P645,000
C.P900,000
B. P937,000
D.P292,000
48. The balance of the Delivery Equipment account at December 31, 2013 should be
A. P5,770,000
C. P4,170,000
B. P3,320,000
D. P3,370,000
E.
F. PROBLEM NO.10
G. SUMPAAN CORP. began operations in 2008. On July 15,2013, a fire broke out in the companys
warehouse destroying all inventory and many accounting records. The following information was
assembled from the microfilmed records. All sales and purchases are on account.
H.
I.
Jan. 1, 2013
July 15,2013
J. Inventory
P 287,700
K. Accounts receivable
261,180
P257,780
L. Accounts Payable
176,280
245,700
Collections from customers, Jan. 1,2013---July 15,2013
1,507,600
M. Payments to suppliers, Jan. 1,2013-July 15,2013
975,000
N. Goods out on consignment on July 15,2013, at cost
97,500
O. Goods in transit at July 15,2013, purchased FOB shipping point
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

33

P.

(included in the July 15 accounts payable balance)

34,750

Q.
R. The following is a summary of prior years sales and gross profit on sales:
S.
2010
2011
2012
T. Sales
P 1,252,000
P 1,410,000
P 1,360,000
U. Gross
375,600
366,600
462,400
V.
W.
49. What is the companys average gross profit ratio based on its prior years sales?
A. 26%
C. 30%
B. 34%
D. 29%
50. What is the companys total sales for the period January 1 through July 15 of the current year?
A. P1,504,200
C. P1,360,380
B. P1,511,000
D. P1,009,670
51. What is the companys total purchases for period January 1 through July 15 of the current year?
A. P905,580
C. P1,044,420
B. P912,170
D. P1,009,670
52. What is the companys estimated inventory on July 15,2013, before the fire?
A. P186,605
C. P146,930
B. P244,430
D. P279,180
53. What is the inventory fire loss?
A. P146,930
C. P132,250
B. P186,605
D. P112,180
E.
F. PROBLEM NO.11
G.
H. YANG CO. Started operations on October 1,2008. Its accounts at June 30, 2011 included the
following balances:
I.
J. Machinery (at cost)
P 196,000
K. Accumulated depreciation-machinery
95,772
L. Vehicles (at cost; purchased February 20, 2009)
320,000
M. Accumulated depreciation-vehicles
178,880
N. Land (at cost; purchased March 20,2011)
150,000
O. Building (at cost; purchased March 20,2011)
581,200
P. Accumulated depreciation-building
6,840
Q. Land improvements (at cost; purchased March 20,2011)
36,000
R. Accumulated depreciation-land improvements
600
S.
T. Details of machines owned at June 30,2011 were:
U.
V. Machine Purchase Date
Cost
Useful Life
Residual Value
W. 1
October 2,2008
P50,000
4 years
P5,000
X. 2
December 27,2008
84,000
5 years
8,000
Y. 3
July 29,2009
62,000
4 years
6,000
Z.
AA.Additional Information:
AB.
a. Yang calculates depreciation to the nearest month and balances the records at month-end.
AC.
Recorded amounts are rounded to the nearest peso, and the reporting date is June 30.
AD.
b. Yang uses straight-line depreciation for all depreciable assets except vehicles, which are depreciated
on the diminishing balance at 30% p.a.
AE.
c. The vehicles account balance reflects the total paid for four identical delivery vehicle, which cost
P80,000 each.
AF.
d. On acquiring the land and building, Yang estimated the buildings useful life and residual value at 20
years and P34,000 respectively.
AG.

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

34

e.

The land improvements account balance reflects a payment of P36,000 made on march 20, 2010 for
driveways and a car park. On acquiring these land improvements, Yang estimated their useful life at 15
years with no residual value.
AH.
AI.
The following transactions occurred from July 1,2011:
AJ.
AK.
Aug. 03, 2011
Purchased a new machine (machine 4) for a cash price of P72,000.
Installation costs of P3,600 were also paid. Yang estimated the useful life and residual
value at five years and P7,000 respectively.
AL.
AM.
Nov. 15, 2011
Paid vehicle repairs of P1,200.
AN.
AO.
Dec. 30, 2011
Exchanged one of the vehicles for items of fixtures that had a fair value of
P34,000 at the date of exchange. The fair value of the vehicle at the date of exchange was
P32,000. The fixtures originally cost P100,000 and had been depreciated by P62,000 to the
date of exchange in the previous owners books. Yang estimated the fixtures useful life and
residual value at five years and P5,000 respectively.
AP.
AQ.
Mar. 10, 2012
Sold machine 1 for P10,000 each.
AR.
AS.
June 30, 2012
Recorded depreciation expense.
AT.
AU.
Sep. 20, 2012
Traded in machine 3 for a new machine (machine 5). A trade-in-allowance
of P20,000 was received for machine 3 and P68,000 was paid in cash. Yang estimated
machine 5s useful life and residual value at six years and P10,000 respectively.
AV.
AW.
Dec. 30, 2012
Scrapped machine 2, as it was surplus to requirements and no buyer
could be found for it.
AX.
AY.
Feb. 08, 2013
Paid P16,000 to overhaul machine 4, after which machine 4s useful life
was estimated at two remaining years and its residual value was revised to P10,000.
AZ.
BA.
June 30, 2013
Recorded depreciation expense.
BB.
BC.
Based on the preceding information, determine the following:
BD.
54. Depreciation expense on machinery for the year ended June 30, 2012.
A. P53,027
C. P49,277
B. P50,420
D. P41,777
55. Gain on exchange on December 30, 2011.
A. P4,012
C. P4,000
B. P2,012
D. P 0
56. Total depreciation expense on all depreciable assets for the year ended June 30,2012.
A. P125,216
C. P113,489
B. P111,281
D. P118,781
57. Gain on trade in of machine no. 3 on September 20, 2012.
A. P23,667
C. P7,667
B. P2,333
D. P 0
E.
58. Total depreciation expense on all depreciable assets for the year ended June 30, 2013.
A. P98,951
C. P106,551
B. P109,451
D. P82,951
E.
F. PROBLEM NO.12
G. SAM, INC grants its customers 30 days credit. The company uses the allowance method for its
uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by
multiplying 2% times the amount of credit sales for the month. At the fiscal year-end of uncollectible
accounts is adjusted accordingly.
H.
I. At the end of 2012, accounts receivable were P3,750,000 and the allowance account had a credit
balance of P318,000. Accounts receivable activity for 2013 was as follows:
J.
Credit sales
P11,400,000
K.
Write-offs
246,000
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

35

L.
Collections
?
M.
N. The companys controller prepared the following aging summary of year-end accounts receivable:
O.
Age Group
Amount
Percent Uncollectible
P.
0-60 days
P2,475,000
2%
Q.
61-90 days
660,000
10%
R.
91-120 days
150,000
30%
S.
Over 120 days
384,000
40%
T.
Total
P3,669,000
U.
V. Based on the preceding information, determine the following:
W.
59. Allowance for uncollectible accounts before year-end adjustment
A. P314,100
C. P300,000
B. P318,000
D. P228,000
60. Required balance in the allowance for uncollectible accounts at December 31,2013
A. P314,100
C. P318,000
B. P300,000
D. P228,000
61. Correct bad debt expense for 2013
A. P213,900
C. P14,100
B. P242,100
D. P3,369,0
E. 00
62. Net realizable value of accounts receivable at December 31, 2013
A. P3,426,900
C. P3,354,900
B. P3,669,000
D. P3,369,000
63. Collections from customers during 2013
A. P14,823,000
C. P14,904,000
B. P11,235,000
D. P3,996,000
E.

F. A1 PASSERS TRAINING, RESEARCH, REVIEW & DEVELOPMENT COMPANY


G. 2nd Floor Sommerset Bldg., Lopez Jaena St. Jaro, Iloilo City
H. Tel. No.: (033) 320-2728; 09106547262
I. Email Address: a1nursingreviewic@yahoo.com.ph
J.
K. BOARD OF CERTIFIED PUBLIC ACCOUNTANT
L.
M. CERTIFIED PUBLIC ACCOUNTANT Licensure Examination SET B
N.

O. AUDITING PROBLEMS
P. GENERAL INSTRUCTIONS:
Q.
1. This test booklet contains 45 test questions.
R.
2. Read INSTRUCTIONS TO EXAMINEES printed on your answer sheet.
S.
3. Shade only one (1) box for each question on your answer sheets. Two or more boxes shaded will
invalidate your answer.
T.
4. AVOID ERASURES.
U.
V. INSTRUCTIONS:
W. 1. Detach one (1) answer sheet from the bottom of your Examinee ID/Answer Sheet Set.
X.
2. Write the subject title AUDITING PROBLEMS on the box provided.
Y.
3. Shade Set Box A on your answer sheet if your test booklet is Set A; Set Box B if your test booklet is
Set B.
Z. ___________________________________________________________________________________
_______
AA.
AB.
PROBLEM 1- ANYANG CORP.
AC.
1. D Unrealized loss- OCI, 2013
AD.
(P13,635,000 CV-P9,390,000 FV)
P4,245,000
2. D Unrealized gain, Jan. 1, 2013
AE. (P13,005,000 P12,330,000)
675,000
AF.
Unrealized gain related to securities sold

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

36

AG.

(P4,830,000 P4,550,000)
(330,000)

AH.

Unrealized loss in 2013


(4,245,000)
AI.

Cumulative unrealized loss, Dec. 31, 2013

3. B Nut realized gain in 2014


AJ.
Loss on sale of Kongga shares
AK.
AL.

Gain on sale of Kandong securities


Fair value of Kandong securities sold
Proceeds from sale

AM.

4. B At fair values
5. B Unrealized loss, Dec. 31, 2013
AN.
Unrealized gain on Kandong securities sold
AO.
(P5,850,000 P5,250,000)

(P3,900,000)
P1,440,000
270,000
1,710,000
5,850,000
P7,560,000
P3,900,000
600,000

AP.

Unrealized loss on Kongga shares sold


AQ.
(P780,000 P720,000)
(60,000)
AR.

Adjusted balance
4,440,000

AS.

Unrealized gain in 2014


AT. (P13,140,000 P2,820,000)
(10,320,000)
AU.

Unrealized gain, Dec. 31, 2014


P5,880,000

AV.
AW.
AX.

PROBLEM 2 DARWIN CORP.


6. C Land (appraised value)

7. A Total purchase price


AY.
Land appraise
AZ.

Balance for allocation


BA.

P26,100,000
P36,000,000
(26,100,000)
P
9,900,000

Building (9,450/13,500 x P9,000,000)


P6,930,000

BB.

Renovations
9,000,000

BC.

Capitalized Interest(9,000,000 x 12%)


1,060,000

BD.

Total cost of building


P17,010,000
8. D Machinery (4,050/13,500 x P9,900,000)
P2,970,000
9. D Cost of building
P17,010,000
BE.

2013 depreciation (P17,010,000 x 10% x )


(850,500)

BF.

2014 depreciation (P17,010,000 P850,500 =


BG.
P16,159,500 x 10%)
1,615,950
BH.

Net book value, Dec. 31, 2014


P14,543,550

BI.
*150% x 1/15
BJ.
BK.
10. D Cost of machinery
BL.
2013 depreciation (P2,970,000 x 40%* x )
(594,000)

P2,970,000

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

37

BM.
2014 depreciation (P2,970,000 594,000)
BN.
P2,376,000 x 40%)
(950,400)
BO.
Net book value, Dec. 31, 2014
P1,425,600
200% x 1/5
BP.
BQ.
PROBLEM 3 KANDARA CO/BULDOG CO/TANOGO CO.
BR.
11. B Issuance of ordinary shares (P15 x 240,000)
BS.
Retained earnings (735,000 P112,250)

P3,600,000
622,750

BT.

Shareholders equity, Dec. 31, 2012


4,222,750

BU.
BV.
BW.

2013
Jan. 10 issuance of ordinary shares
(P16.50 x 35,000)
577,500

BX.

Apr. 2 issuance of pref. Shares (F7x 80,000)

BY.

Oct. 25 issuance of pre3f. Shares(P10 x 20,000)

BZ.

Net Income

560,000
200,000
732,000
CA.

Dividends declared
(420,000)
Shareholders equity, Dec, 31, 2013

CB.

12. D Retained earnings, Jan. 1, 2013


CC.
Net income

P5,872,250
P622,750
732,000

CD.

Dividends

CE.

Appointment for the purchase of machinery

(420,000)
(147,500)
CF.
13. B a.)
CG.

Unappropriated retained earnings Dec..31, 2013


P30 x 60,000
b.)
P35,000 (P2 x 1,000)

P787,250
P1,800,000
33,000

CH.

c.)

P33,000 (P2 x 1,500)

CI.

d.)

P885,000 + P240,000 = P1,125,000 (P2 x 137,500)

30,000
CJ.

e.)
CK.

PP35 x 29,500
Total share premium

14. A Jan. 1 Shares outstanding


CL.
Feb. 15 Issuance
CM.
May 12 Bond conversion (50 x 1,000)
50,000
CN.
June 11 Share dividend (580,000 x 10%)
58,000
CO.
June 30 Shares outstanding
CP.

Dividend rate
CQ.

850,000
1,062,000
P3,775,000
500,000
30,000

638,000
P2
Dividends to be paid

15. D 1st quarter (500,000 + 30,000 = 530,000 x P2)


CR.
2nd 4th quarter (P1,276,000 x 3)

P1,278,000
P1,060,000
3,828,000

CS.

Total dividends to be paid

P4,888,000
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 38

CT.
CU.
CV.
CW.
PROBLEM 4- LAROSA CORPORATION
CX.
16. A Operating Income for 2012, as reported
CY.
Income from discontinued operations

P1,425,000
(121,875)

CZ.

Income from continuing operations before tax


1,303,125

DA.

Income tax (30%)


390,938

DB.

Income from continuing operations for 2013

17. C Operating Income for 2013, as reported


DC.
Loss from discontinued operations

P912,187
P1,462,500
170,625

DD.

Income from continuing operations before tax

DE.
18. D

Income tax (30%)


DF.
Income from continuing operations for 2013

Gain on sale of assets (P300,000 x 70%)


DG.
Loss from discontinued operations (170,625 x 70%)

1,633,126
489,938
P1,143,187
P210,000
(119,438)

DH.

Post-tax Income from discontinued operations


P90,562

19. D

Post-tax loss from discontinued operations


DI.
(P170,625 x 70%)
20. D Post-tax loss from discontinued operations
DJ.
(P170,625 + P450,000*= P620.625 x 70%)
DK.
Implement loss = P1,875,000 FV- P2,325,000 CV
DL.
DM.
DN.
DO.
DP.PROBLEM 5 ACERO CORP.
DQ.
21. B Cost of patents
DR.
Amortization for 2013 (P2,805,000/20 years)

P119,438
P434,438

P2,805,000
(140,250)

DS.

Carrying value, Dec. 31, 2013

22. C Cost of licensing agreement no.1


DT.
Recoverable value
DU.
Impairment loss
P1,080,000
23. D Cost of licensing agreement no.2
DV.
(P1,620,000 + P180,000)
DW.
Amortization (P1,800,000/10)

P2,664,750
P1,800,000
720,000

P1,800,000
(180,000)

DX.

Carrying value, Dec. 31, 2013

24. C Cost of leasehold Improvements


DY.
Accumulated depreciation (450,000 x 2/10)

P1,620,000
P450,000
(90,000)

DZ.

Carrying value, Dec. 31, 2013

25. B Machinery and equipment per books, 12/31/13


EA.
Cost of Improving machinery

P360,000
P3,570,000
1,041,000

EB.

Assembly line equipment


450,000

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

39

EC.

Adjusted balance, Dec. 31, 2013


P5,061,000

ED.
EE.PROBLEM 6 BANTAY COMPANY/ONDONG COMPANY
26. A Cost of equipment (P600,000 x 0.68301)
EF.
Accumulated depreciation, Dec. 31, 2015
EG.

P409,806

(P409,806 P75,000 = P334,806 x 3/5)


(200,884)

EH.
Carrying value, Dec. 31, 2015
P209,922
27. A Note payable, Dec. 31, 2015
28. B Down payment
EI.
PV of instalment payments (P90,000 x 3.03735)
EJ.
Cost of machinery
29. C Interest expense for 2015
30. D Note payable, Dec. 31, 2015

P545,453
P120,000
273,362
P393,362
P25,940
P80,358

EK.
EL.PROMBLEM 7 LYKA COMPANY
31. A
32. A 2011 (P360,000 P30,000)
P330,000
33. B 2012 (450,000 P30,000)
P420,000
34. D 2013 (P480,000 P30,000)
P450,000
35. A
EM.
PROBLEM 8 LYKA COMPANY
EN.
Compensation
Cumulative
EO.
Expense
Compensation
EP. Year
Calculation
for Period
Expense
EQ.
1
P20 x 410 x 50 x 1/3
P136,667
P136,667
ER.
2
P20 x 405 x 50 x 2/3
133,333
270,000
ES. 3
P18 x 407 x 50
96,300
366,300
ET.
EU.
PROBLEM 9 DELTA CORPORATION
EV.
EW.
2011
2012
2013
Total
EX.1 (Traded in 4/1/13)
P160,000
P160,000
P40,000
P360,000
EY.2 (Sold 10/1/12)
160,000
120,000
280,000
EZ.3 (Traded in 7/1/12)
160,000
80,000
240,000
FA. 4
160,000
160,000
160,000
480,000
FB.5 (Acquired 7/1/12)
85,000
170,000
225,000
FC.6 (Acquired 4/1/13)
50,000
150,000
FD.7 (Acquired 6/30/13)
72,000
72,000
FE.
FF.
FG.
Correct depreciation
P640,000
P605,000
P592,000
P1,837,000
FH.Depreciation per client (300,000)
(300,000)
(300,000)
(900,000)
FI. Understatement
P340,000
P305,000
P292,000
P937,000
FJ.
FK.PROBLEM 10 SUMPAAN CORP.
FL. 36. C 30% + 28% + 34%/3
30%
FM.
37. C Accounts receivable July 15
P257,780
FN.
Collections from customers
1,507,600
FO.
Total
1,765,380
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

40

FP.

Accounts receivable, Jan. 1


(261,180)
FQ.
Estimated sales, Jan. 1 July 15
P1,504,200
FR.38. C Accounts payable, July 15
FS.
Payments to suppliers
FT.
Total
FU.
Accounts payable, Jan. 1
FV. Estimated purchases, Jan. 1 July 15
P1,044,420
FW.
39. D Inventory, January 1
P287,700
FX.Estimated purchase
FY.
Goods available for sale
FZ.
Estimated cost of goods sold(P1,504,200 x 70%)

P245,700
975,000
1,220,700
(176,280)

1,044,420
1,332,120
(1,052,940)

GA.
Estimated inventory, July 15
P279,180
GB.
40. A Estimated inventory, July 15
P279,180
GC.
Goods out on consignment
GD.
GE.

Goods in transit
Inventory fire loss

(97,500)
(34,750)
P146,930

GF.
GG.
GH.

PROBLEM 11 YANG CO.


41. M1 (P50,000 - P5,000)/4 x 8/12
P7,500
GI.
M2 (P64,000 - P8,000)/5
GJ.
M3 (P62,000 P6,000)/4
GK.
M4 (P75,600 P7,000)/5 x 11/12

15,200
14,000
12,577

GL.

Total depreciation expense machinery (C)


P49,277

GM.
42. Cost of vehicle trade in
P80,000
GN.
Accumulated depreciation, Dec. 30, 2011:
GO.
Balance, June 30, 2011 (P178,880 x ) P44,720
GP.
Depreciation, 7/1/11 12/30/11
GQ.
(P320,000 P178,880 =
GR.
P141,120 x x 30% x 6/12)
5,292
50,012
GS.

Carrying value, Dec. 30, 2011


29,988

GT.

Fair value of vehicle traded in


32,000

GU.

Gain on exchange, Dec. 30, 2011 (B)


P2,012
GV.

GW.
GX.

43. Machinery
49,277
GY.
Vehicle (P141,120 x x 30%) + P5,292
37,044
GZ.

Building (P581,200 P34,000 = P547,200/20)

HA.

Land Improvements (36,000/15)

27,360
2,400
HB.

Fixtures (32,000 P5,000 = P27,000/5 x 6/12)

HC.

Total depreciation expense (D)

2,700
P118,781
HD.

44. Cost of machine no.3


A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

41

HE.
HF.

Accumulated depreciation, Sep. 20, 2012


(P62,000 P6,000 = P56,000/4 x 38/12)
HG.
Carrying value
HH.
Trade in allowance
HI.
Gain on trade in (B)
HJ. 45. Machinery:
HK.
M2 (P84,000 P8,000 = P76,000/5 x 6/12)

17,667

P7,600
HL.

M3 (P62,000 P6,000 = P56,000/4 x 3/12)


3,500

HM.
HN.
HO.
HP.
HQ.

M4 July 1, 2012 Feb. 8, 2013:


(P75,600 P7,000 = P66,600/5 x 7/12)
- Feb. 8, 2013 June 30, 2013
(P61,020/2 years x 5/12)
20,175
M5 (P88,000 P10,000 = P78,000/6 x 9/12)

P8,003
12,712
9,750
P41,565

HR.
HS.
HT.
HU.
HV.

Vehicles
Cost (P320,00 x )
Accum. Depr., June 30, 2012
(P178,880 P50,012 + P37,044
Carrying value, June 30, 2012
HW.
Multiply by depreciation rate

P240,000
(165,912)
74,088
30%
22,226

HX.

Building (P581,200 P34,000 = P547,200/20)


27,360

HY.

Land improvements P36,000/15)


2,400

HZ.

Fixtures (P32,00 P5,000 = P27,000/5)


5,400
IA.

Total depreciation expense, June 30, 2013 (A)


P98,951

IB.
IC. PROBLEM 12 SAM,INC.
ID.
IE. 46. C 57. A
IF.

58.B

59.C

60.B

IG.
IH.
II.
IJ.
IK.
IL.
IM.
IN.
IO.
IP.
IQ.
IR.
IS.
IT.
IU.
IV.
IW.
IX.
IY.
IZ.
JA.
JB.
JC.
JD.
JE.
JF.
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

42

JG.

JH.

A1 PASSERS TRAINING, RESEARCH, REVIEW & DEVELOPMENT COMPANY


JI. 2nd Floor Sommerset Bldg., Lopez Jaena St. Jaro, Iloilo City
JJ. Tel. No.: (033) 320-2728; 09106547262
JK.Email Address: a1nursingreviewic@yahoo.com.ph

JL.
BOARD OF CERTIFIED PUBLIC ACCOUNTANT
JN.
JO.CERTIFIED PUBLIC ACCOUNTANT Licensure Examination SET A
JP.
JM.

JQ. BUSINESS LAW AND TAXATION


JR. GENERAL INSTRUCTIONS:
JS.
1. This test booklet contains 70 test questions.
JT.
2. Read INSTRUCTIONS TO EXAMINEES printed on your answer sheet.
JU.
3. Shade only one (1) box for each question on your answer sheets. Two or more boxes shaded will
invalidate your answer.
JV.
4. AVOID ERASURES.
JW.
JX. INSTRUCTIONS:
JY. 1. Detach one (1) answer sheet from the bottom of your Examinee ID/Answer Sheet Set.
JZ. 2. Write the subject title BUSINESS LAW AND TAXATION on the box provided.
KA. 3. Shade Set Box A on your answer sheet if your test booklet is Set A; Set Box B if your test booklet is
Set B.
KB. ___________________________________________________________________________________
_______
KC.
1. If debtor gives a property to his creditor who accepts it in payment of an obligation in money, this will be
governed by
a. Cession
c. Exchange
b. Barter
d. Sales
2. D owes C P6,000. No date for payment was stipulated by the parties. Which is correct?
a. C can require D to pay when the period arrives
b. C can require D to pay at anytime
c. D is not liable to C because the obligation is void there being no date of payment
d. D is not required to pay unless C goes to court to require D to pay
3. D borrowed P100,000 from C. the obligation is secured by a mortgage on Ds land and building C
registered the mortgage with the Register of Deeps. Thereafter, D sold the land and building to B who was
not aware of the existence of the mortgage at the time of sale since only the photocopy of the transfer
certificate of title which did not yet contain the annotation of the mortgage as shown to him. It was only
when he went to the Register of Deeps to register the sale of the land and building to him that the learned
of the mortgage. Which is correct?
a. C can collect from D and if D cannot pay, C can foreclose the mortgage
b. C can collect from D cannot pay, C cannot foreclose the mortgage
c. C cannot collect from D. he can only go after the mortgage which was given as security
d. C cannot foreclose the mortgage because B is a buyer in good faith
4. If the illegal contract between the parties is a criminal offense but only one party is guilty, which of the
following is wrong?
a. The guilty party will be criminally prosecuted
b. Neither party may compel the other to comply with his undertaking
c. The instruments shall be confiscated in favour of the government
d. The innocent party shall have no right to receive what he had given
5. A, a bachelor who has sired many children by different women, donated a house and lot to T, his
illegitimate son. The deep of donation and its acceptance were in a public instrument and a new certificate
of title to the house and lot was issued in the same of T. Later, A discovered that T was not his son. Can A
annul the contract?
a. No, because all requisites have been complied with and a new title had been issued in the name of T
b. Yes, A may annul the contract on the ground of mistake as to the identity of T
c. No, but A can ask for rescission because he suffered damages
d. Yes, the contract is void ab inition
6. In January 2002, S, 17 years old, sold his only car to B, 21 years old. The sale was without the knowledge
of G, the guardian of S. Assuming that an annulment case is field today, which is correct?
a. S may bring the action for annulment
b. G may bring the action for annulment
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 43

c. B may bring the action for annulment


d. Annulment will not prosper whoever will file it
7.
8. Which of the following statements is true as regards a void contract?
a. A void contract may be ratified by the acceptance by a party to the contract of a benefit under its
terms
b. The right to set up the defends of illegality of a void contract maybe waived if the illegality is not
raised within a reasonable time
c. If a void contract is notated by a valid one such notation is valid
d. The right to set up the defence of illegality of a void contract is imprescriptible
9. It is contract by virtue of the terms of which the parties thereto promise and obligate themselves to enter
into another contract at a further time, upon happening of certain events, or the fulfilment of certain
conditions
a. Resolutory contract
c. Suspensive contract
b. Option contract
d. Auto-contact
10. Which of the following is a feature common to chattel mortgage and pledge?
a. Deficiency is recoverable in case of sale of the thing pledge/ mortgage
b. The object of the contract is a movable property
c. The excess of the proceeds of sale over the amount of the obligation of the belongs to the
pledgor/mortgagor
d. An affidavit of good faith is required to bind third persons
11. P appointed A as commission agent to sells goods for P10,000 cash. A however sold credit for P11,000
without Ps consent. Based on the foregoing facts, which of the following is correct?
a. P may demand immediate payment of P11,000 cash
b. P may demand immediate payment of P10,000 cash and collect P1,000 later
c. P may ratify the sale on credit for P11,000 and immediately demand P10,000 from A
d. A is entitled to the excess of P1,000 is P did not ratify the sale on credit
12. F made a telephone call to his son S, for S to sell Fs land. In the deep of absolute sale which was
acknowledged before a notary public, S signed as agent of F. Later, in the presence of two witnesses, F
ratified the sale executed by S. Which is correct?
a. The sale was void at the start but was validated upon the ratification by F
b. The sale remained void despite the ratification by F
c. The sale was valid from the start since it was made in a public instrument and F, the owner ratified
the sale
d. The sale was merely unenforceable at the start but the ratification validated the contract
13. A bought a residential house and lot from B Realty for P2M giving a down payment of P200,000 and
promising to pay the balance of P1.8M in 15 years in monthly instalments of P10,000. After paying 72
instalments A defaulted in the payment of subsequent instalments. Despite the grace period given, he was
not able to make any further payments. Accordingly, B Reality cancelled the sale. How much cash
surrender value is a entitled to receive?
a. P552,000
c. P462,000
b. P396,000
d. P506,000
14. A sum of money paid, or a thing delivered upon the making of a contract for the sale of goods to bind the
offer, the delivery and acceptance of which makes the final assent of both parties to the contract
a. Option money
c. Discount
b. Arms
d. Deposit
15. A promised to give B P1, 000 if B will hear mass for ten consecutive Sundays. This is a
a. Civil obligation
c. Moral obligation
b. Natural obligation
d. Religious obligation
16. A promissory note reads I promise to pay B P100,000 on Oct. 30, 2012. Sgd. A . B transferred the note to
C. later, X note the promissory note and transferred the note to Y who received the note in good faith. On
maturity date, Y presented the note to A and demanded payment. A paid the note in good faith. In this case
a. C can recover from A
c. As obligation is extinguished
b. C can recover from B
d. C can recover only from either X or Y
17. A sells to B a Sony colored TV for P12,000 payable in twelve equal monthly instalments beginning May 5,
2012 and every 5th day of each month thereafter. The contract provides that upon failure to pay any
instalment due, the whole balance becomes due and demandable. To secure the obligation, a chattel for
the payment of the TV set was executed. When B defaulted on the seventh and eight instalments, A sued B
for the payment of the whole balance of P6,000. The TV set was levied and subsequently sold at a public
sale for P5,000. Can A still recover the deficiency of P1,000 from B?
a. Yes, if there was stipulation to that effect
b. Yes, even though there was no stipulation
c. No, any stipulation allowing recovery is void
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

44

d. No, if there was no stipulation to that effect


18.
19. A pledged his ring to B for P20,000. A failed to pay his obligation. B sold it at a public auction for P18,000.
Can B recover the deficiency?
a. Yes, even without stipulation
c. No, even if there is stipulation
b. Yes, if there is stipulation
d. No, unless there is stipulation
20. Using the above data, if the sale is P22,000. Can A recover the excess?
a. Yes, even without stipulation
c. No, even if there is stipulation
b. Yes, if there is stipulation
d. No, if there is stipulation
21. C mortgaged his car to B for P200,000. C failed to pay his obligation. B sold it at a public action for
P180,000. Can B recover the deficiency?
a. Yes, even without stipulation
c. No, even if there is stipulation
b. Yes, only if there is stipulation
d. No, if there is stipulation
22. Using the above data, if the sale is for P220,000, can C recover the excess?
a. Yes, even without stipulation
c. No, even if there is stipulation
b. Yes, only if there is stipulation
d. No, unless there is stipulation
23. Essential elements of pledge, except
a. Pledgor is the absolute owner of the thing pledged
b. The person constituting the pledge has the free disposal of his property or if he is an agent or
representative, that he is legally authorized
c. The thing pledge must be placed in the possession of the creditor or of a 3 rd person by common
agreement
d. To bind third persons there must be an affidavit of good faith
24. Essential elements of chattel mortgage, except
a. The object is a personal or movable property
b. The thing mortgage is not delivered to the creditor
c. The mortgagor cannot sell without the consent of the mortgage
d. Description of the thing mortgage must appear in a public instrument
25. Essential elements of real estate mortgage, except
a. In case of foreclosure sale, the mortgage is entitled to the
b. The mortgage can sell even without the consent of the mortgage
c. The thing mortgaged must be delivered to the creditor
d. To bind third persons it must be recorded in the Registry of Property
26. Which of the following statements is not correct?
a. If the thing pledged is returned by the pledge to the pledgor, the obligation is extinguished
b. In sale at public auction, the pledgor may bid and his bid is valid even if he is the only bidder
c. Any stipulation authorizing the pledge to appropriate the thing pledged is void and without effect
d. Shares of stock can be the object of pledge or mortgage
27. Which of the following statements is correct?
a. Third persons who are not parties to the principal obligation cannot give as security in pledge their
property to answer the principal obligation
b. An unregistered chattel mortgage is valid upon the parties but void as to innocent third persons
c. Pledge is a consensual contract and is perfected from the time the thing pledged is delivered to the
creditor
d. In mortgage, the mortgage is entitled to the entire proceeds of the sale of the thing mortgaged
28. Which of the following contracts is not void ab initio?
a. That whose object is outside the commerce of men
b. That whose object did not exist at the time of transaction
c. That which contemplates an impossible service
d. That which is undertaken in fraud of creditor
29. This contract is not perfected until the delivery of the object of the obligation
a. Contract of sale
c. Contract of deposit
b. Contract to make a pledge
d. Contract to make a commodatum
30. As a rule, when a creditor assigns his credit in good faith.
A. He warrants the existence of the credit at the time of assignment
B. He warrants the legality of the credit at the time of assignment
C. He warrants the solvency of the debtor at the time of assignment
a. Only A and C
c. Only B and C
b. Only A and B
d. A,B and C
31. An agricultural land is owned by A and D pro-indiviso. D sells his part to R, who is the owner of the adjoining
land. When A learned of the sale, he tried to redeem to portion sold by D by reimbursing R with the purchase
price and expenses. Which is not correct?
a. A can compel R to permit redemption
b. A co-owner of a thing may exercise the right of redemption in case the shares of the other co-owners or
any one of them are sold to a third person
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

45

c. The sale to R is valid but A can elect to exercise his right of redemption
d. The sale to R is valid and as adjoining land owner hi is the one entitled to redemption
32. A owes B P10,000 with 12% interest. B owes C P1.200. it was agreed between A and B that A would give
the interest of P1,200 to C and C communicated his acceptance of the stipulation between A and B. there
is
a. Stipulation pour atrui
c. Compensation
b. Pactum commissorium
d. Assignment
33. A, B and C are solidary debtors sharing at 1:2:3 of solidary creditors W and Y sharing at 1:2. The obligation
is P12,000. If B is a minor and C is insolvent and W condones the obligation of A without the consent of Y,
how much can W collect from A?
a. P8,000
c. P2,000
b. P6,000
d. P0
34. Using the above information, how much can Y collect from A?
a. P4,000
c. P2,000
b. P6,000
d. P0
35. A is obliged to give B either objects No.1 or No.2 or No.3 at As option. Before A communicated his choice
to B, object No.1 had been destroyed, thru As fault and object No.2 had been destroyed by a fortuitous
event. B may
a. Demand object No.3 only as it is still available
b. Demand the price of object No.1 only plus damages because it was destroyed by As fault
c. Demand the value of object No.1 or object No.3 but without damages
d. Demand either object No.3 or the price of object No.1 plus damages
36. Which of the following is a valid stipulation?
a. A promises to give B P10,000, and if A fails, A will allow B to have sexual intercourse with her
b. A will give B P10,000, if B will kill C
c. A agreed to give B a house and lot if B will be his mistress
d. A agreed to put poison on the food of Bs wife and if A fails, to pay B P10,000 for damages
37. A,B and C are solidarily indebted to D for P9,000 representing the purchase price of 1 gram of shabu but
As consent has been obtained by violence and intimidation, and B is a minor. How much can D collect from
C?
a. P9,000
c. P3,000
b. P6,000
d. P0
38. A cash dividend of P100,000 received by a taxpayer in 2011 from a domestic corporation whose income
from Philippine source is 40% of its total income is
a. Partly taxable if the is a resident citizen
c. Partly taxable if he is a resident alien
b. Exempt from final tax it he is a non
d. Taxable in full if he is a non-resident
resident citizen
citizen
39. A cash dividend of P100,000 received by a taxpayer from a foreign corporation whose income from
Philippine source is 50% of its total income is
a. Exempt from income tax if it is a domestic corporation
b. Exempt from income tax if it is a foreign corporation
c. Taxable in full if he is a resident citizen
d. Taxable in full if he is a resident alien
40. As to scope of legislature power to tax, which of the following is correct?
a. The power to tax supreme, plenary, comprehensive and without any limit because the existence of
the government is a necessity
b. The discretion of Congress in imposing taxes extends to the mode, method and kind of tax, even if
the constitution provides otherwise
c. Congress has the right to levy a tax of any kind at any amount at it sees fit, even in the absence of
any constitutional provision
d. The sole arbiter of the purpose for which taxes shall be levied is Congress, provided the purpose is
public and the courts may not review the levy of the tax to determine whether or not the purpose is
public
41. A resident citizen received a prize of P40,000. Which of the following statements is correct in connection
with the imposition of final tax on the prize?
a. The first P10,000 is part of taxable income while, the remaining P30,000 is subject to 20%final tax
b. The whole amount is part of taxable income
c. The whole amount of P40,000 shall be subject to 20% final tax
d. The first P10,000 shall be exempt from tax, the remaining P30,000 is subject to 20% final tax
42. Under this system, the amount of income tax withheld by the withholding agent is constituted as full and
final payment of the income tax due from the payee on the said income
a. Creditable withholding tax
b. Final withholding tax

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

46

c. Global tax system


d. Scheduler tax system
43. A domestic corporation has the following data for 2012:
44.
Excess MCIT 2011 P15,000
45.
O1
02
46.
Income net of 1% withholding tax
P495,000
P792,000
47.
Deductions
P480,000
700,000
48. How much is the income tax still due and payable in the second quarter?
a. P3,000
c. P18,000
b. P4,000
d. (P2,000)
49. Statement1- is a co-ownership taxable? Yes, because although the activities of the co-owners are limited
to the preservation of the property they derived income there from
50. Statement2- is the share of a co-owner taxable? No, because each co-owner is taxable individually
on his distributive share in the net income of the co-ownership
a. Both statements are correct
c. Only Statement 1 is correct
b. Both statement are wrong
d. Only Statement 2 is correct
51. Jun Jon and Company, a general co-partnership has the following data income and expenses for 2012:
52.
Gross income P 2,400,000
53.
Expenses 1,000,000
54.
Dividend received from a domestic corporation 90,000
55.
Interest on bank deposit (net) 10,000
56. Partners Jun and Jon share profits and losses in the ratio of 80% and 20%, respectively .The income
tax payable by the partnership is
a. P420,000
c. P447,000
b. P450,000
d. P423,000
57. The taxes withheld on the respective share of Jun and Jon in the 2012 partnership income are
a. Jun P78,400 and Jon P19,600
c. Jun P129,600 and Jon P21,600
b. Jun P117,600 and Jon P19,600
d. Jun P86,400 and Jon P21,600
58. A Marketing incurred the following expenses in relation to its business during the taxable year:
59.
Provision for bad debts
P 15,000
60.
Research and development cost, treated as differed expense
500,000
61.
Contributions during the year:
62.
To the government for priority programs in sport
50,000
63.
To the government for public purposes
10,000
64.
To the Catholic church for charitable purposes
25,000
65.
66. Additional Information:
a. Allowance for doubtful accounts per aging of accounts receivable a beginning and ending balance of
P20,000 and P30,000, respectively
b. Accumulated depreciation on machine at the beginning and end of the year amounted to 100,000
and P110,000, respectively
c. During the year the firm sold a machine with a cost and accumulated depreciation of P300,000 and
P30,000, respectively
d. The research and development cost was incurred in the preceding year but the benefit was received
during the taxable year
e. Taxable income before a to d and contributions amounted to P300,000
67.
If A Marketing is a sole proprietorship the allowance before personal exemptions
a.
P80,000
c.
P70,000
b.
P85,000
d.
P65,000
68. Furthermore the amount of taxable income before personal exemptions
a. P220,000
c. P130,000
b. P89,000
d. P115,000
69. Which of the following statements is not correct?
a. Compensation income of individuals that do not exceed the statutory minimum wage is exempt from
the requirement of withholding tax on compensation
b. Compensation income of individuals that do not exceed ten thousand pesos per month is exempt
from the requirement of withholding tax on compensation
c. Holiday pay, overtime pay, night shift differential pay and hazard pay received by individuals shall be
exempt from income tax
d. Minimum wage earners who are receiving on the statutory minimum wage are not subject to
withholding tax and consequently to income tax
70.
71.
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

47

72.
73.
74. Which of the following statements is correct?
a. The monetized value of unutilized vacation leave credit of ten (10) days or less which were paid to
the employee during the year are not subject to income tax and to withholding tax
b. The salary of an employee on vacation or on sick leave, which are paid not with standing his
absence from work, constitutes compensation income, except if not more than 10 days.
c. Any amount which is required by law to be deducted by the employees compensation and is
deemed to be paid to the employee as compensation at the time the deduction is made
d. If living quarters or meals are furnished to an employee for the convenience of the employee, the
value thereof should be included as part of compensation income
75. On January 1, 2011, A leased his vacant lot for a period of 12 years at p240,000 per year. it was agreed
that the lessee will pay the following.
a. Rent of P480,000 (for 2011 and 2012)
b. Security deposit of P240,000
c. Real property tax at P20,000/year
76.
The lease contract provides among others that the lessee will construct a 3-storey building
for parking purposes at a cost of P3,600,000 which shall belong to the lessor upon expiration or
termination of the lease. The building was completed on July 1, 2011, with an estimated useful life 15
years. A shall report for the year 2011, using the spread-out method a total income from lease of
a.
P296,543
c.
P536,521
b.
P573,087
d.
P333,087
77. Using the above data the lessee in 2011 can deduct total expenses amounting to
a. P656,521
c. P416,521
b. P553,043
d. P573,043
78. Recovery of bad debt written off by a taxpayer:
79.
80. No. 1: P20,000 from accounts written off in a year which had a net income of P200,000 before
81.
write-off.
82.
(write-off of the year was P20,000);
83.
84.
No. 2: P5,000 from written off in a year which had a net loss before write-off of P36,000
85.
(write-off for the year was P5,000);
86.
87. No. 3: P10,000 from written off in a year which had a net income of P8,000 before write-off.
88.
(write-off for the year was P12,000);
89. The income from the bad debt recovery is:
a. P35,000
c. P26,000
b. P20,000
d. P30,000
90. XYZ, a domestic corporation was determined to be improperly accumulating its earning for the taxable year
2012 based on its records as follows:
a. Net income from business
P 1,000,000
b. Dividends actually or constructively paid
150,000
c. Income tax paid for the year
270,000
d. Income subjected to 20% final tax (net)
60,000
e. Income exempt from tax
50,000
f. Income excluded from gross income
10,000
g. Net operating loss (2011)
100,000
91.
The tax on improperly accumulated earning is
a. P81,500
c. P80,000
b. P71,500
d. P70,000
92. An individual taxpayer, single, has the following data for the current year:
93.
Ordinary income
P 150,000
94.
Long term capital gain
40,000
95.
Short term capital loss
10,000
96.
97.
How much is the net taxable income
a. P100,000
b. P135,000
c. P140,000
d. P110,000
98.
99.
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

48

100.
101.
102.

Mabuhay Corporation organized in 2010 has the following data:


103.
2011
2012
104.
Sales
P1,700,000
P
2,300,000
105.
Cost
1,700,000
1,425,000
106.
Operating expenses
615,000
480,000
107. The income tax payable in 2011 is
a. P13,000
c. P10,500
b. P5,250
d. P12,250
108.
Using the above data, the income tax payable by Mabuhay Corporation in 2012 is
a. P118,500
c. P116,000
b. P110,750
d. P105,500
109.
A, a resident taxpayer received the following during the taxable year:
I. P12,000 cash received has refund of excess insurance premiums paid to an insurance company
II. P40,000 worth of goods as prize in Beer-Gin talent search
III. A computer unit with a fair market value of P48,000 which was awarded to him in recognition of his
outstanding achievement in scientific research
IV. P25,000 salary per month as an accounting supervisor
110.
111.
Which of the above items is (are) exclusion from taxable income subject to graduated rates?
a. II only
c. I,II and III
b. I and II
d. I and III
112.
Statement 1 Government owned and controlled corporations are subject to tax unless expressly
113.
exempted.
114. Statement 2 - Government agencies performing governmental and proprietary function are exempt
115.
from tax unless expressly taxed
a. True, true
c. True, false
b. False, false
d. False, true
116.
It is aspect of taxation that is administrative in character and the power to exercise it is vested on the
Department of Finance.
a. Levying
c. Imposition
b. Collection
d. Legislation
e. 59 60 Mr. C, single, presented to you the following items of income for the taxable year:
a. Salary as part time instructor (net of P1,400 w/tax)
- P18,600
b. Honorarium as member of the Board of ABC Corp.
- P10,000
c. Rental income of apartment house he purchased using his income
f.
from salary and professional fees
- P12,000
d. Interest income from PNB
g.
On deposit maintained under the expanded foreign
h.
currency deposit system (net)
- $200
i.
On savings deposit (net)
- P4,000
e. Compensation income received as a CPA
- P25,000
f. Royalty income from book publication
- P30,000
g. Prizes received from supermarket raffle
- P12,000
h. Winning from PCSO
- P100,000
i. Compensation for injuries suffered in an accident
- P20,000
j. Bonus and 13th month pay
- P10,000
117.
The taxable income after exemption of Mr.C is
a. P52,000
c. P22,000
b. P17,000
d. P32,000
118.
If Mr. C is married, his taxable income after exemption is
a. P11,000
c. P4,500
b. P17,000
d. P3,100
e. 61 62. A ,single, 49 years old with 2 qualified dependent illegitimate children, presented the
following
f.
data regarding the items in come he earned during the taxable year:
A. Rental income
g.
From a commercial land in USA
P480,000
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

49

h.
B. Royalties from books
i.
j.

From a residential land in Makati


Published in USA
Published in the Philippine

C. Interest income on notes receivable


k.
The debtor resides in USA
l.

The debtor resides in the Philippines

D. Interest income from Philippines Bank


m.
On Peso Currency bank deposit (gross)
n.

On Foreign Currency bank deposit (gross)

P360,000
P120,000
P180,000
P60,000
P72,000
P80,000
P100,000

E. Dividend income from two resident foreign corporation where


o.
the gross income from the Philippines for the past three years
p.
were equivalent to:
q.
40% of its world income
-P60,000
r.
60% of its word income
-P40,000
F. Prizes and awards received from:
s.
Supermarket raffle
t.
From the Philippines ABC Grocery
-P8,000
u.
- DEF Superstore
-P10,000
v.
- CHI Mart
- P12,000
w.
From USA KLM Bazaar
-P9,000
x.
- NOP Mall
P11,000
y.
Ramon Masaysay Award
P100,000
z.
Nobel Peace Prize
P150,000
G. Prizes and winnings from:
aa.
PCSO
P400,000
ab.
USA Lotto
P100,000
ac.
Mahjong and Pusoy Games
P10,000
H. Proceeds of life insurance of his
ad.
Mother where A was designated as revocable beneficiary
P1,000,000
ae.
Father where A was designated as irrevocable beneficiary
P2,000,000
I. Retirement benefits from his employer after rendering
af.
Service for 30 years
P1,200,000
J. Net profit from merchandising business
ag.
From the Philippines
P300,000
ah.
From USA
P200,000
K. Compensation for injuries and damages
ai.
Actual medical and hospital expenses
P100,000
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

50

I.
I.

aj.
P50,000
ak.

Moral and exemplary

Lost profits
P20,000
L. Sale of shares of stock of a domestic corporation
al.
Directly to the buyer, Selling Price
P300,000
am.
Cost
P120,000
an.
Thru the stock exchange, Selling Price
P200,000
ao.
Cost
P210,000
M. Sale of pieces of jewelry held as capital assets
ap.
Acquired 10 years ago, Selling Price
P140,000
aq.
Cost
P80,000
ar.
Acquired this year, Selling Price
P200,000
as.
Cost
P210,000
119.
If A is a resident citizen, his net taxable income (subject to graduated rates) is
a. P2,980,000
c. P2,780,000
b. P1,780,000
d. P2,770,000
120.
If A is a non-resident citizen, his net taxable income (subject to graduated rates) is
a. P1,924,000
c. P1,724,000
b. P1,940,000
d. P1,914,000
121.
Which of the following is subject to 10% final tax?
a. P10,000 interest income
c. P10,000 raffle prize
b. P10,000 royalty from a mining claim
d. P10,000 royalty from a song composition
122.
The deduction allowed for the payment of premium on health insurance during the taxable year by a
resident citizen amounting to P3,000 for the months from August to December is
a. P3,000
c. P1,000
b. P2,000
d. P1,250
123.
Proceeds of life insurance, if the estate is the beneficiary is
a. Part of gross income if revocable
b. Part of gross income if irrevocable
c. Part of gross income regardless of whether revocable or irrevocable
d. Not part of gross income
124.
125.
126.
Which of the following are elements of impact of taxation?
Levy
Assessment
Imposition
Collection
a. I only
c. II and III
b. I and II
d. III only
127.
Which of the aspects of taxation is (are) administrative in nature?
I.
Levy
II.
Assessment
III.
Collection
a. I only
b. I and II
c. II and III
d. III only
128.
A sold his residential land, a capital asset for P2,000,000. It was acquired in 1990 at a cost
of P1,500,000. The fair market value as determined by the BIR is P2,200,000 but the fair market value
shown in the schedule of values of City Assessor is P1,950,000. The entire proceeds were utilized for the
acquisition of As principal residence. The final tax due is
a. P120,000
b. P132,000
c. P117,000
d. P0
129.
Using the above data, but only P1,600,000 was utilized for the acquisition of As principal
residence, the final tax due is
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

51

a.
b.
c.
d.

P24,000
P26,400
P120,000
P132,000
130.
Acting on the information giving by A, the government seized and confiscated smuggled
goods with a fair market value of P1.5M As reward will be
a. P1.5M which is part of his taxable income
b. P1.5M which is subject to 10% final tax
c. P1M which is exempt from tax
d. P1M which is subject to 10% final tax
IV.
V.
VI.
VII.
VIII.
IX.
X.
XI.
XII.
XIII.
XIV.
XV.
XVI.
XVII.
XVIII.
XIX.
XX.
XXI.
XXII.
XXIII.
XXIV.
XXV.
XXVI.
XXVII.
XXVIII.
XXIX.
XXX.
XXXI.
XXXII.
XXXIII.
XXXIV.
XXXV.

XXXVI.

A1 PASSERS TRAINING, RESEARCH, REVIEW & DEVELOPMENT COMPANY


XXXVII.
2nd Floor Sommerset Bldg., Lopez Jaena St. Jaro, Iloilo City
XXXVIII.
Tel. No.: (033) 320-2728; 09106547262
XXXIX.
Email Address: a1nursingreviewic@yahoo.com.ph

XL.
BOARD OF CERTIFIED PUBLIC ACCOUNTANT
XLII.
CERTIFIED PUBLIC ACCOUNTANT Licensure Examination SET A
XLI.

XLIII.
XLIV.

XLV.
XLVI.

PRACTICAL ACCOUNTING 1

GENERAL INSTRUCTIONS:
XLVII.
1. This test booklet contains 40 test questions.
XLVIII.
2. Read INSTRUCTIONS TO EXAMINEES printed on your answer sheet.
XLIX.
3. Shade only one (1) box for each question on your answer sheets. Two or more boxes shaded will
invalidate your answer.
L.
4. AVOID ERASURES.
LI.
LII.
INSTRUCTIONS:
LIII. 1. Detach one (1) answer sheet from the bottom of your Examinee ID/Answer Sheet Set.
LIV. 2. Write the subject title PRACTICAL ACCOUNTING I on the box provided.
LV. 3. Shade Set Box A on your answer sheet if your test booklet is Set A; Set Box B if your test booklet is Set B.
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 52

LVI.

___________________________________________________________________________________
_______

LVII.
1. Cocoa Company reported operating expenses in two categories, namely selling and general and
administrative. The adjusted trial balance on December 31, 2013 included the following expense
accounts:
LVIII.
LIX.
Accounting and legal fees
140,000
LX.
Advertising
120,000
LXI.
Freight out
75,000
LXII.
Interest expense
60,000
LXIII.
Loss on sale of long-term investments
30,000
LXIV.
Officers salaries
180,000
LXV.
Rent for office space
180,000
LXVI.
Sale salaries and commissions
110,000
LXVII.
Research and development expense
400,000
LXVIII.
LXIX.
One-half of the rented premises is occupied by the sales department. What total amount of
the expenses should be included in general and administrative expenses for 2013?
a.410,000
c. 470,000
b.440,000
d.810,000
2. Ruthless Company reported the following events and transactions during 2013?
3.
4.
Depreciation for 2011 was understated by P300,000.
5.
A litigation settlement resulted in a loss of P250,000.
6.
The inventory on December 31, 2011 was overstated by P400,000.
7.
The entity disposed of its recreational division at a loss of P500,000.
8.
9.
The income tax rate is 30%. What is the effect of these events and transactions on 2013 income
from continuing operations, net of tax?
a.175,000
c. 525,000
b.385,000
d.665,000
10. Klumps Company owned the following investments at year-end before fair value adjustments and
amortization:
11. Financial assets at fair value through profit or loss
600,000
12. Financial assets at fair value through OCI
350,000
13. Financial assets at amortized cost
470,000
14.
15. What total amount of noncurrent assets be reported at year-end?
a.1,070,000
b.950,000
c. 820,000
d.820,000 or an amount greater or less depending on the circumstances.
16. Wacko Company provided the following data on December 31, 2013:
17.
18.
Cash in bank, net5 of bank overdraft of P500,000
5,000,000
19.
Petty cash (unreplenished petty cash expenses, P10,000)
50,000
20.
Trade notes receivable, including discounted note of P1,000,000
21.
accounted for as a conditional sale.
4,000,000
22.
Accounts receivable, net of accounts with credit balances of P1,500,000
6,000,000
23.
Inventory
3,000,000
24.
Bond sinking fund
2,000,000
25.
Deferred charges
250,000
26.
Accounts payable, net of accounts with debit balances of P1,000,000
7,000,000
27.
Trade notes payable
4,000,000
28.
Bonds payable due on June 30,2014
2,000,000
29.
Accrued expenses
500,000
30.
31.
What amount should be reported as total current assets on December 31, 2013?
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

53

32.

33.

34.

35.

36.

a. 20,040,000
c. 20,050,000
b. 22,040,000
d. 22,290,000
Maricel Company has three manufacturing divisions, each of which has been determined to be a reportable
segment. Common costs are appropriately allocated on the basis of each divisions sales in relation to
entitys aggregate sales. In 2013, Division I had sales of P10,000,000, which was 20% of the entity total
sales, and has traceable operating costs of P6,000,000. In 2013, the entity incurred costs of P2,000,000
that were not directly traceable to any of the divisions. These costs included general corporate expenses of
P500,000. In addition, the entity incurred interest expense of P500,000 which was directly traceable to
Division I in 2013. Information about interest expense is regularly provided to the chief operating decision
maker. What amount should be reported as operating profit of Division I for 2013?
a. 4,000,000
c. 3,600,000
b. 3,700,000
d. 3,200,000
Brod Company has historically reported bad debt expense of 10% of sales in each quarter. For the current
year, the entity followed the same procedure in the three quarter of the year. However, in the fourth quarter,
the entity determined that bad debt expense for the entire year should be P900,000. Sales were
P2,000,000 for first quarter, P1,500,000 for second quarter, P2,500,000 for third quarter, and P4,000,000
for fourth quarter. What amount of bad debt expense should be recognized for the fourth quarter?
a. 900,000
c. 400,000
b. 300,000
d. 600,000
Amen Company incurred an inventory loss from market decline of P800,000 on March 31, 2013. The
market decline is expected to recover during the year. One June 30, 2013, the net realizable value of the
inventory increased by P900,000. What amount of gain should be reported in the quarterly income
statement ending June 30, 2013?
a. 900,000
c. 100,000
b. 800,000
d. 0
Lure Company purchased equipment for P5,750,000 on January 1, 2012 with a useful life of 10 years and
no residual value. On January 1, 2014, the entity classified the equipment as held for sale. The fair value of
the equipment on such date is P3,795,000 and the cost of disposal is P115,000. On December 31, 2014,
the fair value of the equipment is P4,370,000 and the cost of disposal is P230,000. On December 31, 2014,
the entity determined that the criteria as held for sale can no longer be met and decided not to sell the asset
but continue using it. What amount should be recognized in profit or loss as a result of the reclassification in
2014?
a. 920,000
c. 345,000
b. 460,000
d. 0
Louise Companys bank statement for the month of April included the following information:
37.
38.
Bank service charge for April
13,000
39.
Check deposited by the entity during April marked NSI by the bank and returned
40,000
40.
41.

Deposits made but not yet recorded by bank


132,400
Checks written and mailed but not yet recorded by bank

98,700

42.
43.
All deposits in transit and outstanding checks have been properly recorded by the entity. A customer
check for P35,000 payable to Louise Company had not yet been deposited and had not been recorded.
The bank account balance per ledger P921,300. What amount should be reported as cash on April 30?
a. 903,300
c. 834,600
b. 955,000
d. 990,000
44.
45.
46. On July 1, 2013, Shane Company sold P750,000 of accounts receivable to a finance entity. The
finance entity assessed a finance fee of 4% and retained a holdback of 12%. On December 15, 2013,
the entity assigned P2,500,000 as a collateral on a P2,000,000 12% annual interest rate bank loan.
The bank assessed a 5% service charge on the amount of the loan. On December 31,2013, the
allowance for bad debts before adjustment is P32,000 and the balance of accounts receivable,
excluding the factored and assigned accounts is P500,000. No assigned accounts have been collected
by the end of the year. What total amount was initially received from the financing of accounts
receivable?
a. 2,530,000
c. 3,530,000
b. 2,505,000
d. 2,620,000
47. Wall Company has significant accounts from three customers, P480,000 due from Step Company,
P900,000 due from War Company, and P760,000 due from Hall Company. The entity has other
accounts receivable totalling P440,000. The entity determined that the War receivable is impaired by
P160,000 and the Hall receivable is impaired by P200,000. The receivable from Step is not impaired.

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

54

The entity determined that a composite rate of 5% is appropriate to measure impairment on al: other
accounts receivable. What is the total impairment of accounts receivable in the current year?
a. 382,000
c. 406,000
b. 314,000
d. 360,000
48. On December 31,2013, Bred Companys ending inventory was P3,000,000 and the allowance for
inventory write down before any adjustment was P150,000. Relevant information on December 31,
2013 follow:
49.
50.
Product
Cost Replacement cost
Sales price
NRV
Normal profit
51.
52.
53.
54.
55.
56.

1
2
3
4

800,000
1,000,000
700,000
500,000

900,000
1,200,000
1,000,000
600,000

1,200,000
1,300,000
1,250,000
1,000,000

550,000
1,100,000
950,000
350,000

250,000
150,000
300,000
300,000

What amount of loss on write down is included in cost of goods sold for 2013?
a. 50,000
c. 400,000
b. 200,000
d. 250,000
57. The balance in Thunder Companys accounts payable account on December 31, 2013 was P700,000
before any necessary year-end adjustments relating to the following:
Goods were in transit Thunder from a vendor on December 31, 2013. The invoice cost was
P40,000. The goods were shipped Free Alongside on December 29, 2013 and were received
on January 4, 2014.
Goods shipped Ex-ship on December 21,2013 from a vendor to Thunder were received on
January 6, 2014. The invoice cost was P25,000.
On December 27, 2013, Thunder wrote and recorded checks to creditors totalling P30,000 that
were mailed on January 10,2014.
58.
59.
What amount of accounts payable should be reported on December 31, 2013?
a. 730,000
c. 765,000
b. 740,000
d. 770,000
60. Bugs Company harvested wool on July 1, 2013. On such date. The fair value less cost of disposal at
the point of harvest is P650,000. On December 31, 2013, the wool was still on had and its fair value
less cost of disposal and net realizable value were P700,000 and P600,000 respectively. What amount
should be recognized as gain on agricultural produce in 2013?
a. 150,000
c. 650,000
b. 100,000
d. 600,000
61. On January 1, 2013, Spike Company purchased 1,600 ordinary shares of Lee Company for P528,000.
During the year, Lee paid a cash dividend of P13 per share. On December 31, 2-13. Lee shares were
selling for P380 per share. Spike purchased the shares and irrevocably designated to classify them at
FVTOCI. On October 1, 2014, Lee shares were selling at P400 per share. No dividends were declared
by Lee in 2014. What amount of unrealized gain on the investment should be recognized in the 2014
statement of changes in equity?
a. 80,000
c. 40,000
b. 56,000
d. 16,000
62.
63.
64.
65.
66. True Company purchased P1,000,000 of 8% bonds of Blue Company on January 1, 2013, at a
discount, paying P922,780. The bonds mature on January 1, 2018, and yield 10% and interest is
payable each January 1 and July 1. The entity has a business model whose objective is to hold assets
in order to collect contractual cash flows and the contractual terms of the financial asset provide
specified dates with regard to cash flows that are solely payments of principal and interest. On
December 31, 2013, the market rate of interest is 12%, and the fair value of the bonds is P875,790 at
the 12% market rate. What amount should be recognized at interst income for 2013?
a. 92,278
c. 73,822
b. 92,585
d. 80,000
67. At the beginning of the year. Space Company purchased a 30% interest in Jam Company for
P6,000,000. Jam has 100,000 P100 par value ordinary shares outstanding. On purchase date, the
carrying amount of Jams net assets was P15,000,000 and that equipment with a 4-year remaining life
and inventory were undervalued by P4,000,000 and P2,000,000 respectively. During the year, Jam
earned net income of P3, 600,000 and paid dividends of P1,200,000. Only half of the inventory was
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 55

solda.by1,080,000
Jam during the year. At the end of the year, the shares of
c. Jam
360,000
were trading on an organized
exchange
b. 480,000
for P220 per share. What is the investment income for
d. 2013?
780,000
68. On January 1, 2013, Raptors Company purchased 25,000 shares of Game Company which represent
a 10% interest for P2,000,000. Raptor elected to measure the investment at FVTOCI. Game reported
net income of P4,000,000 and paid no dividends in 2013. The fair value of the investment was
P1,900,000 on December 31,2013. On January 1, 2014, Raptors paid P5,000,000 for 50,000
additional shares of Game Company. The fair values of the identifiable assets of Game Company
equalled carrying amount of P20,000,000 on purchase date expect for land whose fair value exceeded
carrying amount by P3,000,000. Game reported net income of P6,000,000 for 2014 and paid dividends
of P20 per share on December 31, 2014. What is the carrying amount of the investment on December
31, 2014?
a. 7,100,000
c. 7,200,000
b. 6,900,000
d. 5,200,000
69. Fire Company has the Philippine peso is Functional currency. The entity expects to purchased goods
from USA for $50,000 on March 31, 2014. Accordingly, the entity is exposed to a foreign currency risk.
If the dollar increase before the purchase takes places, the entity will have to pay more pesos to obtain
the $50,000 that it will have to pay for the goods. On October 1, 2013, the entity entered into a forward
currency contract with a bank speculator to purchase $50,000 in six months for a fixed amount of
P2,000,000 or P40 to $1. This forward currency contract is designated as cash flo3w hedge. On
December 31, 2013, the exchange rate is P43 to $1. On December 31, 2013, what amount should be
reported as derivative asset or liability?
a. 100,000 asset
c. 100,000 liability
b. 150,000 asset
d. 150,000 liability
70. At year-end, Candy Company reported cash and cash equivalents comprising cash on hand P500,000
demand deposit P4,000,000, certificate of time deposit P2,000,000, post dated customers check
P300,000 petty cash fund P50,000, travels check P200,000, managers check P100,000 and money
order P150,000. What total amount of cash should be reported at year-end?
a. 7,000,000
c. 6,800,000
b. 4,800,000
d. 5,000,000
71. Cane Company acquired a new equipment by exchanging an old equipment:
72.
73.
Equipment old
5,000,000
74.
Accumulated depreciation
4,000,000
75.
Fair valve of old equipment
1,200,000
76.
Cash received on exchange
500,000
77.
78.
What amount should be recorded as cost of the equipment received in exchange?
a. 1,200,000
c. 700,000
b. 1,700,000
d. 500,000
79.
80.
81.
82.
83.
84.
85.
86. Cavs Company fabricated equipment for office use during the current year. The following data were
taken from the records:
87.
Materials
Direct Labor
88.
Finished goods
1,000,000
1,500,000
89.
Office equipment
600,000
500,000
90.
91.
92.
Factory overhead amounted to P1,200,000. Normal production of finished goods is 50,000
units. Due to the fabrication of office equipment, finished goods produced totalled 35,000 units only in
the current year. The office equipment is to be charged with the overhead which would have been
apportioned to the 15,000 units which were not produced. What is the total cost of office equipment?
a. 1,100,000
c. 1.460,000
b. 1,400,000
d. 2,300,000
93. Suns Company purchased land for P1,100,000. The entity paid P70,000 to tear down a building on the
land. Salvage was sold for P10,500. Legal fees of P6,500 were paid for title investigation and making
the purchase. Architect fees were P40,500. Title insurance was P4,500 P12,000. The contractor was
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

56

paid P1,357,000. A one-time assessment made by the city for sidewalks was P7,500. Suns installed
lighting and signage at a cost of P11,000. What is the total cost of the land?
a. 1,195,000
c. 1,103,000
b. 1,178,000
d. 1,006,500
94. On January 1, 2013, the city government provided Clippers Company a zero interest P3,000,000 loan
with a 3-year term. Interest is payable annually every December 31. The prevailing market rate of
interest for this type of loan is 8%. What amount of income from government grant should be
recognized in 2013? Round present value factor to 2 decimals,
a. 630,000
c. 240,000
b. 189,600
d. 210,000
95. Red Company is constructing a building. Construction began on January 1, 2013 and was completed
on December 31, 2013. The average expenditures in 2013 amounted to P3,200,000. The entity
borrowed P1,200,000 on January 1, 2013on a 5-year, 12% note to help finance construction of the
building. In addition, the entity had outstanding all year a 10%, 3-year, P3,000,000 note payable and a
12%, 4-ygear, P5,000,000 note payable. What amount should be charged to interest expense for
2013?
a. 369,000
c. 675,000
b. 900,000
d. 600,000
96. Grey Company purchased a machine on July 1, 2013 for P750,000. The machine had a useful life of
10 years with residual value of P42,000. During 2016, it became apparent that the machine would
become uneconomical after December 31, 2020, and that the machine would have no residual. What
is the charge for depreciation in 2016?
a. 106,200
c. 123,000
b. 114,600
d. 143,250
97. In January 2013, Cement Company purchased a mineral mine for P3,400,000 with removable ore
estimated at 2,000,000 tons. The property has an estimated value of P200,000 after the ore has been
extracted. The entity incurred P1,000,000 of development cost preparing the mine for production.
During 2013, 500,000 tons were removed and 400,000 tons were sold. What is the amount of
depletion that should be expensed in 2013?
a. 640,000
c. 840,000
b. 800,000
d. 1,120,000
98. Shot Company reported an impairment loss of P1,600,000 in 2012. This loss was related to an item of
property, plant and equipment which was acquired on January 1, 2011 with cost of P10,000,000, useful
life of 10 years no residual value. On December 31, 2012, the entity reported this asset at P6,400,000
which is the fair value on such date. On December 31, 2013, the entity determined that the fair value
of the impaired asset had increased to P7,200,000. The straight line method is used. What amount of
gain on reversal of impairment should be reported in 2013?
a. 1,600,000
c. 600,000
b. 1,400,000
d. 0
99. On January 1, 2008. Hard Company purchased equipment at a cost of P6,000,000. Depreciation was
computed on the straight line basis at 4% per year. On January 1, 2013, the building was revalued at a
fair value of P8,000,000. The income tax rate is 30%. What is the revaluation surplus on December 31,
2014?
a. 2,128,000
b. 2,240,000
c. 2,880,000
d. 2,016,000
100.
On May 1, 2013, Crimson Company exchanged 20,000 treasury shares of P25 par value for a
patent owned by Joker Company. The treasury shares were acquired in 2012 for P450,000. On May 1,
2013, Crimsons share was quoted at P34, and the patent had a carrying amount of P550,000. What is
the initial cost of patent?
a. 450,000
b. 500,000
c. 550,000
d. 680,000
101.
During the current year, Squadron Company incurred the following costs:
102.
103. Testing in search for process alternative
350,000
104. Cost of marketing research for new product
250,000
105. Modification of the formulation of a process
510,000
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

57

106. Research and development services performed by Blue Company for Squadron
425,000
107.
108. What amount should be reported as research and development expense?
a. 1,535,000
c. 1,285,000
b. 1,185,000
d. 860,000
109.
Sick Company acquired an oil rig for P20,000,000 on January 1, 2013. The life of the rig is 10
years and the expected cost to dismantled the rig at the end of 10 years is P4,000,000. The entity is
required by law to dismantle the rig after 10 years. The appropriate discount rate is 10%. The PV of 1
at 10% periods is 386. The discount on the liability for dismantling cost should be amortized using the
effective interest method. What total amount of expense should be reported for 2013 as a result of
these events?
a. 2,400,000
c. 2,800,000
b. 2,154,400
d. 2,308,800
110.
Jenkins Company gives its customers coupons redeemable for a poster plus an audio CD. One
coupon is issued for each peso of sales. On the surrender of 100 coupons and P50 cash, the poster
and CD are given to the customer. It is estimated that 80% of the coupons will be presented for
redemption. Sales for 2013 were P7,000,000, and the coupons redeemed totalled 3,400,000. Sales for
2014 were P8,400,000, and the coupons redeemed totalled 8,500,000. Based on past experience,
coupons expected to be redeemed in one year will be redeemed in the next year. The entity bought
20,000 posters at P20 each and 20,000 CDs at P60 each. What is the premium liability on December
31, 2014?
a. 336,000
c. 126,000
b. 252,000
d. 84,000
111.
Spizike Company had two issues of securities outstanding, namely ordinary shares and 8%
convertible bond issue in the face amount of P16,000,000. Interest payment dates of the bond issue
are June 30 and December 31. The conversion clause entities the bondholders to receive forty
ordinary shares of P20 par value in exchange for each P1,000 bond. On June 30, 2014, the holders of
P2,400,000 face value bonds exercised the conversion privilege. The market price of the bond on that
date was P1,100 and the market price of the share was P35. The total unamortized bond discount at
the date of conversion was P1,000,000 and the equity component when the bonds were issued was
P1,200,000. What amount should be credited to share premium-issuance as a result of this
conversion?
a. 330,000
c. 660,000
b. 510,000
d. 480,000
112.
Faints Company manufactures machinery used in the mining industry. On January 1, 2013, it
leased equipment with a cost of P2,000,000 to Gray Company. The 5-years lease calls for a 10%
down payment and equal annual payments of P732,600 at the end of each year. The equipment has
an expected useful life of 5 years. Grays incremental borrowing rate is 10%, and it depreciates similar
equipment using the double declining balance method. The cash selling price of the equipment is
P3,250,000, and the rate implicit in the lease is 8%, which is known to Gray. What is the lease liability
on December 31, 2013?
a. 2,777,400
c. 2,426,400
b. 2,192,400
d. 2,484,900
113.
Atlanta Company prepared an aging of accounts receivable on December 31, 2013 and
determined that the net realizable value of accounts receivable was P5,000,000. The entity revealed
the following information for the current year:
114. Allowance for doubtful accounts - January 1
600,000
115. Accounts receivable December 31
6,000,000
116. Accounts written off
800,000
117. Recovery of accounts written off
100,000
118. What amount should be recognized as doubtful accounts expense for the current year?
a. 1,100,000
c. 1,200,000
b. 1,000,000
d. 1,800,000
119.
The 12% bonds payable of Motorboat Company had a carrying amount of P8,320,000 on
December 31, 2013. The bonds, which had a face value of P8,000,000, were issued at a premium to
yield 10%. The entity used the effective interest method of amortization. Interest is paid on June 30
and December 31. On June 30, 2014, the entity retired the bonds at 110 plus accrued interest. What is
the loss on retirement in 2014?
a. 800,000
c. 544,000
b. 480,000
d. 320,000

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

58

120.
Rings Company is part of a major industrial group and is known to accurately disclose related
party transactions in its financial statements. Remuneration and other payments made to the entitys
chief executive offer during 2013 were:
121.
122. Annual salary
2,000,000
123. Share options and other share-based payments
1,000,000
124. Contributions to retirement benefit plan
500,000
125. Reimbursement of travel expenses for business trips
1,200,000
126.
127. What total amount should be disclosed as compensation to key management personnel?
a. 3,500,000
c. 3,000,000
b. 4,700,000
d. 2,500,000
128.
On December 31, 2013, a flood at Pamela Companys only warehouse caused severe damage
to its entire inventory. Based on recent history, the entity has a gross profit of 25% of sales. The
following information is available from the records for the year ended December 31, 2013:
129.
130. Inventory January 1
520,000
131. Purchases
4,120,000
132. Purchase returns
60,000
133. Sales
5,600,000
134. Sales returns
400,000
135. Sales allowances
100,000
136.
137. A physical inventory disclosed usable damaged goods which can be sold for P100,000. Using
the gross profit method, what is the estimated cost of goods sold for the year ended December 31,
2013?
a. 3360,000
c. 3,900,000
b. 3,830,000
d. 3,825,000
138.
Kaye Company leases and operates a retail store. The following information relates to the lease
for the year ended December 31, 2013.
The store lease, an operating lease, calls for a base monthly rent of P15,000 on the first day of
each month.
Additional rent is computed at 6% of net sales over P3,000,000 up to P6,000,000 and 5% of
net sales over P6,000,000 per calendar year.
Net sales for 2013 amounted to P9,000,000.
The entity paid executor costs to the lessor for property taxes of P120,000 and insurance of
P50,000
139.
140.
What total amount of the expenses relating to the store lease should be reported for
2013?
a. 710,000
b. 680,000
c. 540,000
d. 350,000
141.
142.
143.
144.
145.
146.
147.
148.
149.
150.
151.

152.

A1 PASSERS TRAINING, RESEARCH, REVIEW & DEVELOPMENT COMPANY


153.
2nd Floor Sommerset Bldg., Lopez Jaena St. Jaro, Iloilo City
154.
Tel. No.: (033) 320-2728; 09106547262
155.
Email Address: a1nursingreviewic@yahoo.com.ph
157.

156.
BOARD OF CERTIFIED PUBLIC ACCOUNTANT
158.

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

59

159.
160.

CERTIFIED PUBLIC ACCOUNTANT Licensure Examination


161.

1. 410,000
2. 175,000 (250,000 X 70%)
3. Depends on the fair value of the financial asset at FVTOCI and amortization
162. of financial asset at amortized cost
4. 22,040,000
5. 3,200,000 (10,000,000 6,000,000 500,000)
6. Bad debts for the year
163. Bad debts to date 3rd quarter (6,000,000 x 10%)
(600,000)
164. Bad debts in the 4th quarter
300,000B
7. Up to extent of P800,000 only
8. Carrying amount 1!1!1!1(5,750,000 230,000)
165. Depreciation that would be recognized in 2014
(575,000)
166. Carrying amount 12/31/14 as if not held for sale
4,025,000
167.
168. FV less cost of disposal 12/31/14 (4,370,00 230,000)
4,140,000
169.
170. Measurement of equipment lower amount
171. Carrying amount 12/31/14 per book
(3,680,000)
172. Gain on remeasurement
345,000C
9. 903,300
10. 2,530,000
11. War
173. Hall
200,000
174. Other receivables (480,000 + 440,000 = 920,000 x 5%)
175. Total impairment
406,000C
12. Required allowance for inventory writedown
176. (3,000,000 2,600,000)
400,000
177. Allowance before adjustment
178. Loss on inventory writedown
250,000D
13. 770,000(700,000 + 40,000 + 30,000)
14. 650,000
15. FV 12/31/14(800 x 400)
179. HC (528,000 x )
(264,000)
180. Cumulative unrealized gain
56,000B
16. 92,585(46,139 + 46,466)
17. Cost
181. CA of net assets acquired (15,000,000 x 30%)
(4,500,000)
182. Excess cost
1,500,000
183. Equipment (4,000,000 x 30%)
(1,200,000)
184. Inventory (2,000,000 x 30%)
(600,000)
185. Excess FV
(300,000)
186.

A
A
D
B
D
900,000

B
4,600,000

4,025,000

A
A
160,000
46,000

(150,000)
D
C
320,000

B
6,000,000

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

60

187. Share in NI (3,600,000 x 30%)


1,080,000
188. Amortization equipment (1,200,000/4)
(300,000)
189. Amortization inventory (600,000/2)
190. Excess FV
300,000
191. Investment income
780,000D
192.
18. Cost (1,900,000 + 5,000,000)
193. Share in NI (6,000,000 x 30%)
1,800,000
194. Dividends received (20 x 75,000)
(1,500,000)
195. CA 12/31/14
196.
197. Total shares of Game (25,000/10%)
250,000
198. Additional interest (50,000 x 250,000)
19. 100,000 asset (50,000 x2)
20. 5,000,000 (500 + 4,000 + 50 + 200 + 100 + 150)
21. 700,000(1,200,000 500,000)
22. 1,460,000 (600,000 + 500,000 + 360,000)
23. 1,178,000
24. PV of note payable (3,000,000 x 0.9)
199. Income from government grant (2,370,000 x 8%)
189,000B
25. 3,000,000 x 10%
200. 5,000,000 x 12%
600,000
201. 8,000,000
900,000
202. Average rate (900,000 / 8,00,000)
11.25%
203.
204. Specific (1,200,000 x 12%)
144,000
205. General (2,000,000 x 11.25%)
225000
206. Capitalizable
369,000
207. Specific loan interest (1,200,000 x 12%)
144,000
208. General loan interest (3,000,000 x 10%) + (5,000,000 x 12%)
900,000
209. Actual interest cost
1,044,000
210. Capitalized interest
(369,000)
211. Amount charged to interest expense
26. 114,600 (573,000/5)
27. 840,000(400,000 x 2.10)
28. Carrying amount 21/31/13 as if no impairment
212. (10,000,000 x 7/10)
7,000,000
213. Carrying amount 12/31/13 with impairment
214. (6,400,000 800,000)
5,600,000
215. Gain on reversal of impairment loss
1,400,000B
29. FV 1/1/13
216. CA 1/1/13 (6,000,000 1,200,000)

(300,000)

6,900,000

7,200,000C

20%
A
D
C
C
B
2,370,000
300,000

675,000C
B
C

8,000,000
(4,800,000)

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

61

217. Revaluation surplus 1/1/13 before taxes


3,200,000
218. DT liability (3,200,000 x 30%)
219. Revaluation surplus 1/1/13 after taxes
2,240,000
220. Realization in 2013 and 2014 (2,240,000/20 x 2)
(224,000)
221. Revaluation surplus 12/31/14
2,016,000D
30. 680,000(400,000 x 2.10)
31. 1,285,000 (350,000 + 510,000 + 425,000)
32. Original cost
222. PV of dismantling cost (4,000,000 x 0.386)
1,544,000
223. Total cost of the rig
21,544,000
224. Depreciation (21,544,000/10)
225. Interest expense (1,544,000 x 15%)
154,000
226. Total expense
33. 126,000(4,200 x 30)
34. Bonds payable
227. Share premium conv. (1,200,000 x 15%)
180,000
228.
Bond discount(1,000,000 x 15%)
150,000
229.
Share capital (2,400 x 40 x 20)
1,920,000
230.
Share - premium issuance
510,000B
35. Lease liability 1/1 !3(3,250,000 x 90%)
231. Less: principal payment
232.
Total payment
732,600
233.
Interest (2,925,000 x 8%)
(498,600)
234. Lease liability 12/31/13
2,426,000C
36. 1,100,000
37. 544,000
38. 3,500,000
39. 5,200,000 x 75%
40. 680,000
235.

236.

(960,000)

D
C
20,000,000

2,154,400
2,308,800D
C
2,400,000

2,925,000

234,000

A
C
A
3,900,000C
B

A1 PASSERS TRAINING, RESEARCH, REVIEW & DEVELOPMENT COMPANY


237.
2nd Floor Sommerset Bldg., Lopez Jaena St. Jaro, Iloilo City
238.
Tel. No.: (033) 320-2728; 09106547262
239.
Email Address: a1nursingreviewic@yahoo.com.ph
240.
BOARD OF CERTIFIED PUBLIC ACCOUNTANT
242.
CERTIFIED PUBLIC ACCOUNTANT Licensure Examination SET B
241.

243.
244.

245.

PRACTICAL ACCOUNTING 2

246.
GENERAL INSTRUCTIONS:
247.
1. This test booklet contains 50 test questions.
248.
2. Read INSTRUCTIONS TO EXAMINEES printed on your answer sheet.
249.
3. Shade only one (1) box for each question on your answer sheets. Two or more boxes shaded will
invalidate your answer.
250.
4. AVOID ERASURES.
251.
252.
INSTRUCTIONS:
253. 1. Detach one (1) answer sheet from the bottom of your Examinee ID/Answer Sheet Set.
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 62

254. 2. Write the subject title PRACTICAL ACCOUNTING II on the box provided.
255. 3. Shade Set Box A on your answer sheet if your test booklet is Set A; Set Box B if your test booklet is
Set B.
256.
_________________________________________________________________________________
_________
257.
1. Which of the following statements is incorrect?
a. The tax remittance advice is recorded by the agency by crediting subsidy income from National
Government
b. The gross payroll is advanced to disbursing offer and is recorded by crediting Cash National
Treasury Modified Disbursement System.
c. Upon payment of the office equipment on a account, Due to BIR account shall be credited for the
withholding tax
d. The unused NCA is to be reverted to the Bureau of Treasury by crediting the Cash NT MDS
account
2. Faith and hope, a private not-for-profit voluntary health and welfare organization, received the following
contributions in 2011:
I.
P25,000 from donors who stipulated that the money not be spent until 2012.
II.
P60,000 from donors who stipulated that the contributions be used for the acquisition of equipment,
none of which was acquired in 2011.
258.
259.
Which of the above events increased temporarily restricted net assets for the year ending
260.
December 31, 2011?
a. I only
c. II only
b. Both I and II
d. Neither I nor II
3. On January 2, 2011, SD Company signed an agreement to operate as a franchisee of TQ Products ,.Inc,..
for an initial franchisee fee of P937,500 for 7 years. Of this amount, P175,000 was paid when the
agreement was signed and the balance payable in four annual payments beginning on December 31,
2011. SD signed a non-interest bearing note for the balance. SDs rating indicates that he can borrow
money at 16% for the loan of this type. Assume that substantial services amounting to P283,500 had
already been rendered by TQ Products and that additional direct franchise cost of P25,5000 was also
incurred PV factor is 2.80.
4.
5.
If the collection of the note is not reasonably assured the net income for the year ended December
31, 2011 is
a. P313,435
c. P168,135
b. P228.035
d. P253,535
6. On August 1, 2012, PAUL Corp. Sold a price of land costing P1,350,000 at a gross margin of 66 2/3%
above cost. The buyer paid a 20% down payment and ,made four instalments of P90,000 each during the
same year. Using the instalment method of accounting, how much is the realized gross profit in 2012?
a. 180,000
b. 324,000
c. 486,000
d. 216,000
7. Tsup Tsup Corporation filed a bankruptcy petition on January 2009. On March 1, 2009, the trustee
provided the following information about the corporations financial affairs:
8.
9.
Asset
Book Value
Realizable Value
10.
Cash
P40,000
P40,000
11.
Accounts receivable net
200,000
150,000
12.
Inventories
300,000
140,000
13.
Plant assets net
500,000
560,000
14.
Total Assets
P1,040,000
15.
16.
Liabilities
17.
Liabilities for priority claims
P160,000
18.
Accounts payable unsecured
300,000
19.
Notes payable, secured by
20.
accounts receivable
200,000
21.
mortgage payable, secured by all
22.
plant assets
440,000
23.
total Liabilities
P1,100,000
24.

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

63

25.

The amount expected to be available for unsecured claims without priority


a. 300,000
c. 140,000
b. 580,000
d. 310,000
26. Krebs Crabs, Inc. Franchisor, entered into a franchise agreement with Liwayway Ligaya, franchisee, on
July 1, 2012. The total franchise fees agreed upon is P1,100,000, of which P100,000 is payable upon
signing and the balance in four equal annual instalments. It was agreed that the down payment is not
refundable, not withstanding lack of substantial performance of services by franchisor. When Kerbs
prepares its financial statements on July 31, 2012, the unearned franchise fees to be reported is:
a. 0
c. 1,000,000
b. 100,000
d. 1,100,000
27. On December 31,2009 entity A, an SME, acquired 30% of the ordinary shares that carry voting rights of
entity Z for P100,000. In acquiring those shares entity A. Incurred transaction of P1,000. Entity A has
entered into a contractual arrangement with another party (entity C) that owns 25% of the ordinary shares
of entity Z, whereby entities A and C jointly controlled entity Z. Entity A use the cost model to account for its
investments in JCE. A fair valuation of the investments in entity Z determined using a reliable earnings
multiple approach exists. In January 2010, entity Z declared and paid dividend of P20,000 out of profits
earned in 2009. No further dividends were paid in 2010, 2011 and 2012. At December 31, 2010, 2011 and
2012, management assessed the fair values of its investment in entity Z as P102,000, P110,000 and
P90,000, respectively. Costs to sell are estimated at P4,000 throughout. Entity A measures its investment
in entity Z on December 31, 2011 at?
a. P110,000
c. P106,000
b. 101,000
d. P95,000
28. On December 31, 2010, the following figures were taken the trial balances of Ayoshi
29.
30. Cash
P160,000
P40,000
31. Receivables
120,000
120,000
32. Inventory
200,000
140,000
33. Property and equipment net
400,000
200,000
34. Goodwill
--60,000
35. Current liabilities
40,000
20,000
36.
Long term liabilities
140,000
100,000
37.
Common stock
220,000
200,000
38.
Additional paid in capital
40,000
--39.
Retained earning
440,000
240,000
40.
41.
On December 312, 2010, Ayoshi issues 10,000 shares of its P10 par value stock for the net
assets of Misao. Ayoshis stock had a P34 per share fair market value. Ayoshi would also issue bond
debentures with face value of P200,000 maturing 3 years from date of issue. Discount related to the bonds
issued amounted to P40,000. Ayoshi also paid the following: P50,000 for brokers fee, P40,000 for pre
acquisition adult fee, P43,000 for legal fees, P36,000 for audit fee for SEC registration of stock issue and
P11,000 for printing of stock certificates. Misao hold an equipment that is wroth P80,000 more than its
current book value. The retained earnings of Misao on January 1, 2010 amounted to P140,000.
42.
43.
44.
How much is the total combined assets after the merger?
a. P1,500,000
c. P1,280,000
b. P1,240,000
d. P1,320,000
45. On December 3, 2011, Jane Company purchased 70% of the outstanding shares of Jasmine Company for
P245,000. On that date, Jasmine Company had P100,00o of capital stock and P250,000 of retained
earnings. For 2012, Jane Company had income of P200,000 from its own operations and paid dividends of
P100,000. For 2012, Jane Company reported income of P200,000 from its own operations and paid
dividends of P100,000. For 2012, Jasmine Company have book value book values approximately equal
their book values.
46.
47.
The beginning inventory of Jane Company includes P6,000 of merchandise purchased from
Jasmine Company on December 31, 2011 at 150% of cost. The ending inventory of Jane Company
includes P9,000 of merchandise purchased from Jasmine Company at the same mark up. Jane Company
uses FIFO inventory costing.
48.
49.
What is the non-controlling interest in Jasmine Company or the year ended December 31,
2012?
a. 117,000
c. 107,700
b. 110,700
d. 105,000
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

64

50. On January 2, 2011, Davao Corporation purchased 70% of the common stock of Cotabato Company for
P4,675,000. At that date, Cotabato had P4,887,500 of common stock outstanding and retained earnings of
P1,572,50. Cotabatos equipment with a remaining life of 5 years had a book value of P2,380,000 and a
fair of P2,550,000. Cotabatos remaining assets had book values equal to their fair values. All intangibles
except goodwill are expected to have remaining lives of 10 years. Non-controlling interest shall be
measured an fair value.
51.
52.
The income and dividend figures for both Davao and Cotabato are as follows:
53.
Income
Dividend
54.
Davao: 2011
P1,572,500
P425,000
55.
2012
1,785,000
510,000
56.
Cotabato:
2011
340,000
85,000
57.
2012
569,500
127,5000
58.
Davaos income as shown does not include any dividend income from Cotabato. Davaos retained
59.
earnings balance at the date of acquisition was P5,858,500.
60.
61.
On December 31, 2012, the consolidated retained earnings is:
a.P8,821,300
c. P8,993,850
b.P8,970,050
d.P29,017,650
62. Fish Ball Co. Charges P90,000 for a franchise with P18,000 paid when the agreement is signed and the
balance in four annual payments. The present value of the annual payments, discounted at 9% is
63.
P58,315. The franchises has the right to purchase P20,000 of equipment for P16,000. If
collectability of the payments is reasonably assured and substantial performance by Fish Ball has
occurred, what is the amount of revenue from franchise fee that should be recognized?
a. 81,563
c. 78,315
b. 76,315
d. 72,000
64. PAX has the following foreign currency transaction during 2012:
65.
66.
Merchandise was purchased from a foreign supplier on Jan. 20, 2012 for the peso
equivalent of P900,000. The invoice was paid on March 31, 2012, at the equivalent of P960,000. On July 1,
2012, PAX borrowed the equivalent of P5,000,000 equivalent by a note that is payable in the lenders local
67.
Currency on July 1, 2012. On Dec. 31, 2012, the equivalent of the principal amount and
accrued interest were P5,200,000 and P260,000 respectively. Interest on the notes is 10% per annum.
68.
69.
In the 2012 income statement of PAX what amount should be reported as foreign exchange
loss?
a. 0
c. 270,000
b. 210,000
d. 80,000
70. ON Jan. 5, 2012, P sold to its 80% owned subsidiary, S Corp. , a machine for P120,000. At that time the
machine had a net book value of P90,000. S estimated the remaining life of the machine to be six years.
Assume that in 2012, P and S reported a profit of P80,000 and P100,000 respetively.
71.
72.
Determine the consolidated net income for 2013?
a. 119,000
c. 144,000
b. 155,000
d. 135,000
73. P owns 80% interest in ABC Corp. In the year 2010, the two firms reported profit own operations as follows:
74.
P
90,000
75.
ABC
75,000
76.
77.
Record show that P shipped merchandise to ABC billed for P360,000 the cost is P300,000
and 20% of these goods are not yet sold as of Dec. 31, 2012
78.
79.
ABC constructed a warehouse for P at a cost P120,000 and billed the latter for P150,000 on
January 1, 2012. The asset has an estimated useful life of 5 years.
80.
81.
How much is the consolidated net income at the end of 2012?
a. 129,000
c. 141,000
b. 165,000
d. 118,800
82. D and EW entered into partnership on February 1, 2012 by the investing the following:
83.
84.
85.
Diaz
86.
Esteban
87.
88.
D
89.
B
90.
Cash
91.
15,000 92.
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 65

93.
Inventor 94.
95.
45,000
y
96.
Land
97.
98.
15,000
99.
Building 100.
101.
65,000
102.
Furnitur 103.
100,000 104.
e and Fixture
105.
106.
The agreement between D and E provides that profits and losses are to on divided into 40%
and 60% to D and E, respectively. The partnership is to assume the P30,000 mortgage loan an the
building.
107.
108.
Assuming that E invests P50,000 cash and each partner is to be credited for the full
amount of the net assets invested the total capital of the partnership is:
a. 210,000
c. 260,000
b. 250,000
d. 290,000
109.
A,B and C decided to dissolve the partnership on Nov. 30, 2012. Their capital balances and
profit ratio on this date follow:
110.
111.
112.
Capital
113.
D&E
ratio
114.
A
115.
P50,000 116.
40%
117.
B
118.
60,000
119.
30%
120.
C
121.
20,000
122.
30%
123.
124.
The Net income from Jan to Nov. 30, 2012 is P44,000. Also on this date, cash end liabilities
are P40,000 and P90,000 respectively. For A to receive P55,200 in full settlement of this interest in the firm,
how much must be realized from the sale of the firms non cash assets?
a. 177,000
c. 193,000
b. 187,000
d. 196,000
125.
Harris Company has the following information for July:
126.
127.
Units started
100,000
units
128.
Beginning Work in process:(35% complete)
20,000
units
129.
Normal spoilage (discrete)
3,500
units
130.
Abnormal spoilage
5,000
units
131.
Ending Work in process:(70% complete)
14,500
units
132.
Transferred out
97,000
units
133.
Beginning Work in process Costs:
134.
Material
P15,000
135.
Conversion
10,000
136.
137.
All material are added at the start of the production process. Harris Company insects goods
at 75 percent completions to conversation.
138.
139.
140.
141.
Assume that the costs per EU for material and conversion are P1.00 and P1.50,
respectively. Using FIFO, what is the total cost assigned to the transferred-out units (rounded to the nearest
dollar)?
a. P245,750
c. P237,000
b. P244,438
d. P224,938
142.
Palos Company opened its Cabu branch a year ago. At year end, the branch summarized
operating data as follows: Sales, P364,000. Shipments from home office, P148,500; Purchases, P137,500;
Expenses, P71,500; Ending inventory, P82,500 (of which P16,500 from outsiders); beginning inventory,
P60,000 (of which P45,000 came from office.)
143.
144.
The overstatement in branch cost of sales assuming shipments by home office are made at
20% Gross Profit rate is:
a. P25,500
c. P16,250
b. P21,000
d. P21,250
145.
The true net income of the branch is:
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY// 66

a. P45,250
b. P50,000

c. P50,250
d. P54,500
146.
Nica provide the following information for the transaction occurred during August. The
production plant uses the JIT costing system.
- Raw materials costing P750,000 were purchased
- All direct materials costing P750,000 were requisitioned for production.
- Direct labor costs of P500,000 were incurred.
- Actual factory overhead costs amounted to P2,487,500.
- Applied conversion cost totalled P3,250,000. This includes the direct labor cost.
- All units are completed and immediately sold.
147.
148.
The total RIP used to be back flushed to FG and the adjusted COGS, respectively
a. P750,000; 3,737,500
c. 4,000,000; 3,737,500
b. 4,000,000; 4,262,500
d. 750,000; 4,262,500
149.
A Corporation received a promissory note denominated in foreign currency from the sales
made to a Singaporean customer. The following were the transactions: (In Singapore Dollars). On
December 1, A Corporation sold merchandise to a Singaporean customer for 60-day, 12% promissory note
for $32,000, at a buying rate of $1 to P31.20. on December 31, the buying spot rate is $1 to P34.85. on
January 30 the buying spot rate is P33.75. on the settlement date how much is the forex gain or loss?
a. P35,552 gain
c. P35,904 gain
b. P35,904 loss
d. P35,552 loss
150.
On November 1, 2009, Galaxy Philippines took delivery from a Thailand from of inventory
costing 225,000 baht. Payment is due on January 30, 2010. Concurrently, Galaxy Philippines paid P2,025
cash to acquire a 90-day call option for 225,000 Thailand baht.
151.
152.
11/1/2009
12/31/2009
1/30/2010
153.
Spot rate (market price) P1.20
P1.22
P1.23
154.
Strike price (exercise price)
1.20
1.20
1.20
155.
Fair value of call option P2,025
P4,950
P6,750
156.
157.
What is the intrinsic value and time value of option on December 31, 2009?
158.
159.
Intrinsic value
Time Value
Intrinsic Value
Time Value
160.
A. P4,500
P450
C.
P450
P4,500
161.
B.
4,950
0
D.
0
4,950
162.
163.
SSS Company produces two products (A and B). Direct material and labor costs for Product
A total P35 (35 (which reflects 4 direct labor hours); direct material and labor costs for product B total P22
(which reflects 1.5 direct labor hours). Three overhand functions are needed for each product... product A
uses 2 hours of function 1 at P10 per hour, 1 hour of function 2 at P7 per hour, and 6 hours of Function 3 at
P18 per hour. Product B user 1, 8, and 1 hours of function 1, 2, 3, respectively. SSS produces 800 units of
A and 8,000 units of B each period.
164.
165.
If total overhead is assigned to A and B on the basis of units produced, Product A will have
an overhead cost per unit of
a. P88.64.
b. P123.64.
c. P135.00.
d. None of the responses are correct.
166.
The following information is available from the Fitzgerald Company:
167.
168.
Actual OH
P15,000
169.
Fixed OH expenses, actual
P7,200
170.
Fixed OH expenses, budgeted
P7,000
171.
Actual hours
3,500
172.
Standard hours
3,800
173.
Variable OH rate per DLH
P2.50
174.
175.
Assuming that Fitzgerald uses a three-away analysis of overhead variance, what is the
overhead spending variance?
a. P750 F
c. P950 F
b. P750 U
d. P1,500 U
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

67

176.
The following March Information is available for Scott Manufacturing Company when it
produced 2,100 units:
177.
178.
Standard:
179.
Material
2 pounds per unit @ P5.80 per pound
180.
Labor
3 direct labor hours per unit @ P10.00 per hour
181.
182.
Actual
183.
Material
4,250 pounds purchased and used @ P5.65 per pound
184.
Labor
6,300 direct labor hours at P9.75 per hour
185.
186.
What is the material price variance?
a. P637.50 U
c. P630.00 U
b. P637.50 F
d. P630.00 F
187.
Light of Jesus operates a branch in Cagayan de Oro City. Selected accounts taken from
Dec. 31, 2010 financial statements of light of Jesus and its branch follows:
188.
189.
Home Office
Branch
190.
Sale
P6,900,000
P3,765,000
191.
Shipments to Branch
4,750,000
192.
Shipments from home office
2,187,500
193.
Inventory, Jan, 1
800,000
120,000
194.
Inventory, Dec. 31
640,000
250,000
195.
Purchases
6,800,000
1,000,000
196.
Allowance for overvaluation before
452,500
197.
Adjustment
198.
Expenses
356,000
250,000
199.
200.
The ending inventory of the branch includes P120,000 purchased from outside suppliers.
The consolidated net income is:
a. P1,791,500
b. P2,220,000
c. P2,218,00
d. P2,244,000
201.
On December 31, 2005 a foreign subsidiary in Hongkong submitted the following balance
sheet stated in foreign currency:
202.
203.
Total assets
$500,000
204.
Total Liabilities
100,000
205.
Common stock
250,000
206.
Retained Earnings
150,000
207.
208.
The exchange rate are:
209.
210.
Current rate
P3.40
211.
Historical rate
3.10
212.
Weight average
3.00
213.
214.
215.
Assuming the functional currency of the subsidiary is the not the currency of the
hyperinflationary economy was used and the retained earnings of the subsidiary on December 31, 2005
translated to Peso is P460,000. What amount of Cumulative translation adjustment is to be reported in the
consolidated balance sheet on December 31, 2005?
a. 25,000
c. 50,000
b. 10,000
d. 125,000
216.
O company sold merchandise for 90,000 pounds from a vendor in London on November 1,
2009. Payment in British pounds was due on January 30, 2010. On the same date, O entered into a 90 day
futures contract to sell 90,000 pounds from a bank. Exchange rate for pound on different dates are as
follows:
217.
Nov.1
Dec.31
Jan.31
218.
Spot rate P71.4
P72.7
P71.9
219.
30 day futures
72.3
72.5
73.2
220.
60 day futures
71.8
72.2
72.6
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

68

221.
90 day futures
70.6
72.6
73.4
222.
223.
How much is the net forex gain or loss on January 31, 2010?
a. P18,000 loss
c. P9,000 loss
b. P18,000 gain
d. P9,000 gain
224.
PPP Company produces 50,000 units of Product Q and 6,000 units of Product Z during a
period. In that period, four set-ups were required for color changes. all units of Product Q are black, which
is the color in the process at the beginning of the period. A set-up was made blue units of Product Z; a setup was made for 4,500 red units of Product Z; a set-up was made for 500 green units of Product Z. A setup was then made to return the process to its standard black coloration and the units of Product Q were
run. Each set-up costs P500.
225.
If set-up cost is assigned on a volume basis for the department, what is the approximate per
unit set-up cost for Product Z?
a. P.010
c. P.040
b. P.036
d. None of the responses are correct
226.
Uniform Company has developed standard overhead costs based on a capacity of 180,000
machine hours as follows:
227.
228.
Standard costs per unit:
229.
Variable portion
2 hours @ P3 =
P6
230.
Fixed portion
2 hours @ P5 =
10
231.
P16
232.
During April, 85,000 units were scheduled for production, but only 80,000 units were
actually produced. The following data relate to April:
233.
234.
Actual machine hours used were 165,000
235.
Actual overhead incurred totalled P1,378,000(P518,000 variable plus P860,000 fixed).
236.
All inventories are carried at standard cost.
237.
The fixed overhead spending variance for April was:
a. P40,000 U
c. P60,000 F
b. P40,000 F
d. P60,000 U
238.
Forrest Company uses a standard cost system for its production process and applies
overhead based on direct labor hours. The following information is available for August when. Forrest made
4,500 units:
239.
240.
Standard:
241.
DLMH per unit
2.50
242.
Variable overhead per DLH
P1.75
243.
Fixed overhead per DLH
P3.10
244.
Budgeted variable overhead
P21,875
245.
Budgeted fixed overhead
P38,750
246.
247.
Actual:
248.
Direct labor hours
10,000
249.
Variable overhead
P26,250
250.
Fixed overhead
P38,000
251.
Using the two-variance approach, what is the controllable variance?
a. P5,812.50 U
b. P5,812.50 F
c. P4,375.00 U
d. P4,375.00 F
252.
Ratcliff Company produces two products from a joint process: X and Z. Joint processing
costs for this production cycle are P8,000.
253.
Disposal
254.
Sales price
Cost per
Further
Final
sale
255.
per yard atyard at
processing
price per
256.
Yards
split-off
split-off
per yard
yard
257.
X
1,500
P6.00
P3.50
P1.00
P7.50
258.
Z
2,200
5.00
3.00
3.00
11.25
259.
260.
If X and Z are processed further, no disposal costs will be incurred or such costs will be
borne by the buyer.
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

69

261.
Using approximated net realizable value at split-off, what amount of joint processing cost is
allocated to X (round to the nearest dollar)?
a. P3,090
b. P5,204
c. P4,000
d. P2,890
262.
Whale Company manufactures products X and Y from a joint process that also rears a by
product, Z. Revenue from sales of Z is treated as a reduction of joint costs. Additional information is as
follow:
263.
Products
264.
X
Y
Z
Total
265.
Units produced
20,000
20,000
10,000
50,000
266.
Joint costs
?
?
?
P262,000
267.
Sales value at
268.
Slit-off
P300,000
P150,000
P10,000
P460,000
269.
270.
Joint costs were allocated using the sales value at split-off approach. The joint costs
allocated to product X were
a. P84,000
b. P100,000
c. P150,000
d. P168,000
271.
The following information is available for Hazel Company for April:
272.
Started this month
80,000 units
273.
Beginning WI
274.
(40% complete)
7,500 units
275.
Normal spoilage (discrete)
1,100 units
276.
Ending WI
277.
(70% complete)
900 units
278.
Beginning Work in Process Costs:
279.
Material
P10,000units
280.
Conversion
13,800 units
281.
Current Costs:
282.
Material
P120,000units
283.
Conversion
350,000units
284.
285.
All material are added at the start of production and the inspection point is at the end of the
process.
286.
What is cost assigned to ending unit for material using weighted average?
a. P1.49
c. P1.56
b. P1.63
d. P1.44
287.
What is the cost assigned to ending inventory using FIFO?
a. P75,920
c. P56,42C
b. P58,994
d. P53,144
288.
The following information is available for Mathis Company for the current year:
289.
Beginning Work in process
Costs of Beginning Work in process:
290.
(75% complete)
14,500 units
Material
P25,100
291.
Started
75,000 units
Conversion
50,000
292.
Ending Work in process
current Costs:
293.
(60% complete)
16,000 units
Material
P120,000
294.
Abnormal spoilage
2,500 units
Conversion
300,000
295.
(continuous)
296.
Transferred out
66,000 units
297.
298.
All materials are added at the start of production.
299.
300.
What is the cost per equivalent unit for material using weighted average?
a. P1.72
b. P1.62
A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

70

c. P1.77
d. P2.07
301.
V and A are partners having capital balances of P150,000 and P180,000, respectively, and
sharing profits and losses equally. They admit 1. to a 1/3 interest in the partnership capital and profits for an
investment of P195,000. If the asset revaluation method is used in recording the admission of the
partnership.
a. L capital will be P175,000
c. A capital will be P210,000
b. Total capital will P525,000
d. Asset revaluation will be at P45,000

A1 PASSERS TRAINING, RESEARCH, REVIEW AND DEVELOPMENT COMPANY//

71

302.
A,B and C are partners with average capital balances during 2012. P472,500 ; P238,650 ;
and P162,350, respectively. The partners receive 10 interest on their average capital balances ; after
deducting salaries of P122,325 to A and P82,625 to C, the residual profit or loss is divided equally.
303.
304.
In 2012, the partnership had net loss of P125,624 before the interest and salaries to
partners. By what amount should A and C capital account change?
305.
306.
307.
A,
308.
B,
capital
capital
309.

A.

312.

B.

315.

C.

318.

D.

310.
844 decrease
313.
358 decrease
316.
476 increase
319.
267 increase

40,
28,
29,
30,

311.
237 decrease
314.
458 increase
317.
536 increase
320.
448 decrease

31,
32,
17,
40,

321.
322.
In 2011, Dreambuilders, Inc. was contracted to build the private road network of
ALBABANG Subdivision for P350 million. The product was expected to be finished in 2 years and the
contract provide for:
A 5% mobilization fee (to be deducted from the last billing), payable within 15 days from the
contract signing.
A retention provision of 10% on all billings, payable with the final bill after the completed contract is
accepted .
Payment of progress billings within 30 days from acceptance.
323.
Dreambuilders, Inc. estimated a 25% gross margin on the project. By the end of the year,
Dreambuilders had presented progress billings corresponding to 50% completion. ALABANG accepted all
the bills presented, except one for 10% which was accepted on January 7 of the next year. With the
exception of the second to the last billing for 10% which was due January 13 of the next year, all accepted
billings were settled. As of December 31, 2011, Dreambuilders, Inc. construction in progress, net of billing,
from the project under the percentage of completion method amounted to:
a. P35 million
b. P140 million
c. P0
d. P175 million
324.
on January 2, 2010, Panaad Company acquired 80% interest in Sarabia Company for
P4,125,000 cash. On the date the outstanding; capital stock and retained earnings of Panaad Company
and Sarabia Company are as follows:
325.
Panaad
Sarabia
326.
Common shares
P2,250,000
P1,312,000
327.
Share premium
1,500,000
328.
Retained earning
525,000
3,187,500
329.
There was no issuance of capital stock during the year. Non-controlling interest is initially
measured at fair value. Fair values of the following assets of Sarabia expanded their book values as
follows: Inventories, P210,000; Property and equipment (useful life 10 years). P127,500. All other assets
and liabilities are fairly valued. Goodwill if any is not impaired. On December 31, 2010 the two companies
reported the following operating results:
330.
Panaad
Sarabia
331.
Net Income
P1,785,000
P975,000
332.
Dividends paid
525,000
262,500
333.
What is the consolidated stockholders equity to be reported in the consolidated statement
of financial position on December 31, 2010?
a. P10,651,800
b. P13,500,000
c. P7,035,000
d. P11,781,000
334.
Tropical Company manufacturing three products a joint process which costs P25,000. Each
product can be sold at slit-off or processed further and then sold. 10,000 units of each product are
manufacturing. The following information is available for the three products.
335.
338.
Sa 340.
S 343.
S
336.
Pro
les Value
eparable
ales Value
ducts
339.
at 341.
P 344.
a

337.

Split-off

345.

346.

349.

350.

353.

354.

rocessing
t Completion
342.
C
osts after Split-off
P1 347.
P 348.
P
2
9
21
10 351.
4 352.
1
7
15 355.
6 356.
1
9

357.
358.
a.
b.
c.
d.
359.
a.

To maximize profits, which products should Tropical process further?


Product A only
Product B only
Product C only
Product A,B, and C
Which of the following statements is incorrect?
In the construction of building by contract, Advances to Contractor account may be debited when
billings are received.
b. In the construction of building by contract, Construction in Progress account it credited to recognize
the building account.
c. Issued purchase order for the office equipment requires only a memo entry in RAOCO.
d. The agency enters the obligation for bank charges in RAOFE; Cash in Bank- LCCA account is
credited in the regular agency books.
A non profit organization had the following cash contributions and expenditures in 2012:
Unrestricted cash contributions
P300,000
Restricted cash contributions for the acquisition of property 200,000
Cash expenditures to acquire property
200,000

360.
361.
362.
363.
364.
365.
The statement of cash follows should include which of the following amounts?
a. Operating P700,000, investing (P200,000), and Financing P0.
b. Operating P500,000, investing P0, and financing P0.
c. Operating P500,000, investing (P200,000)
d. Operating P0, Investing P500,000 and Financing P200,000
366.
On July 1, 2012, XYZ Construction Corp. Contracted to build in office building for ABC, Inc.
for total contract price of P975,000.
367.
2012
2013
2014
368.
Contract cost incurred to date
P75,000
2,600,000
P1,050,000
369.
Estimated costs to complete the contract
675,000
400,000
370.
Billings to ABC, Inc.
150,000
550,000
275,000
371.
372.
How much is the Construction in Progress account balance at December 31, 2013, using
the percentage of completion method?
a. P900,000 b. P575,000
c.P825,000
d. P350,000
373.
MOBY Company which began operation on Jan. 1, 2012, appropriately uses the instalment
sales method of accounting. The following data are available for 2012.
374.
Instalment Accounts Receivable 12/31/12
375.
DGP, 12/31/12 (before recognition of RGP)
376.
GPR on sale
377.
The cash collection during the year amounted to:
a. a. 300,000
c. 600,000
b. b. 450,000
d. 432,000
378.
Diane and Pinky join for the sale of certain mer5chandise. The participants agree to the
following:
a. Diane shall be allowed a commission of 10% on his net purchase.
b. The participants shall be allowed commissions of 2.5% on their respective sales.
c. Diane and Pinky shall divide the profit or loss 60% and 40%, respectively
379.
Joint Venture Transaction follows:
380.
Dec. 1 Diane makes cash purchase of P57,000
381.
3 Pinky pays venture expenses of P9,000
382.
5 Sales are as follows: Diane- P48,000; Pinky-P36,000. The participants keep
their
383.
own cash receipts
384.
6 Diane returns unsold merchandise and receives P15,000 cash
385.
15 The participants make cash settlement

386.
387.
In the final settlement, what amount would Pinky pay Diane?
a. 14,100
b. 14,880
c. 14,890
d. 15,100
388.
On March 2011 entities SME A and SME B each required 30 percent of the ordinary shares
that carry voting rights at a general meeting of shareholders of entity Z of P300,000. Entities A and B
immediately agreed to share control over entity Z. On 31 December 2011 entity Z declared a dividend of
P100,000 for the year 2011. Entity Z reported a profit of P80,000 for the year ended 31 December 2011. At
31 December 2011 the recoverable amount of each ventures investment in entity Z is P290,000
(calculation: fair value P293,000 less cots to sell P3,000). There is no published price quotation for entity Z.
389.
390.
Assuming that entity Z earned its profit evenly through the year, under Cost Method, How
much will be recognized in profit (loss) by each venture as a result of the investment?
a. a. 30,000
c. 20,000
b. b. 16,667
d. 38,333
391.
On January 1, 2011, A acquired a 50% interest in B for P60 million. A already held a 20%
interest which had been acquired for P20 million but which was valued at P24 million at January 1, 2011.
The fair value of the NCI at January 1, 2011 was P30million, and the fair value of the identified net assets
of B was P100 million. How much is the goodwill to be recognized as a result of the business combination?
A. A. 3,000,000
B. 7,000,000
C.0
D.4,000,000
392.
Kobe Company acquired the net assets of Lakers Corporation on January 1, 2011. Since
the parties cannot agree on the definite value of the company in terms of potential future earnings, they
agreed to include in the purchase agreement a provision for contingent consideration. Whereby the
acquirer will apply an additional cash payments on January 1, 2013 equal to twice the amount by which
average earnings of Lakers exceed P250,000 per year, prior to January 1, 2013. Net income was P500,000
in 2011 and P600,000 in 2012. Assume that the liabilities recorded on January 1, 2011, include an
estimated contingent liability amounting to P400,000.
393.
394.
What was the entry made by Kobe in January 1, 2013?
395.
A. Liability form contingent consideration
400,000
396.
Cash
400,000
397.
B. Goodwill
200,000
398.
Liability from contingent consideration
400,000
399.
Cash
600,000
400.
C. Liability from contingent consideration
400,000
401.
Loss on contingent consideration
200,000
402.
Cash
600,000
403.
D. Goodwill
600,000
404.
Cash
600,000
405.
406.
Pete Enterprises owns 60% of the outstanding stock of Susie Company, which it purchased
for P50,000 above the underlying book value P720,000 on December 31, 2008. For the year 2011, Susie
included in its net income P90,000 of unrealized gain on a year-end sale of depreciable assets to Pete. The
NCI of Susie was assigned P12,000 of income in the 2011 consolidated financial statements. The excess
allocated to equipment is amortized over 20 years. What is the net income reported by Susie for 2011?
a. 125,000
b. 120,000
c.155,000
d. 150,000
407.
408.
409.
410.
411.
412.
413.
414.
415.
416.
417.
418.
419.
420.
421.

422.
423.
424.
425.
426.
427.
428.
429.
430.
431.
432.
433.
434.
435.
436.
437.
438.
439.

440.