Father Saturnino Urios University

Accountancy Program
Butuan City

Accounting 520
Prelim exam
Anbert Angelo C. Cayna, CPA

Instruction: Shade the letter of your choice in the answer sheet provided. No erasures allowed.
1. Jen Company is completing the preparation of its draft financial statements for the year ended December 31,
2010. The financial statements are authorized for issue on March 31, 2011.
On March 15, 2011, a dividend of P1,750,000 was declared and a contractual profit share payment of P350,000
was made, both based on the profit for the year ended December 31, 2010.
On February 1, 2011, a customer went into liquidation having owed the entity of P340,000 for the past 5 months.
No allowance had been made against this debt in the draft financial statements.
On December 30, 2011, a manufacturing plant was destroyed by fire resulting in a financial loss of P2,600,000.
What total amount should be recognized in profit or loss for the year ended December 31, 2010 to reflect
adjusting events after the end of reporting period?
a. 1,750,000
b. 3,290,000
c. 2,600,000
d. 690,000
Dysas 1st #1 D
2. Yola Corporation, a diversified company, is required to report the operating profit or loss of its industry segments.
For the year ended December 31, 2011, segment Wys sales to segment Zee were P100,000. Segment Wys
share of Yolas allocated general corporate expenses was P20,000. In the computation of Wys 2011 operating
profit or loss, the amount of the aforementioned items to be included is:
a. 120,000
b. 100,000
c. 80,000
d. 20,000
Dysas 1st #2 B
3. The following information pertains to Aria Corporation and its divisions for the year ended December 31, 2011:
Sales to unaffiliated customers
20,000,000
Intersegment sales of products similar to those sold to unaffiliated customers
6,000,000
Interest earned on loans to other industry segments
400,000
Aria and all of its divisions are engaged solely in manufacturing operations. Aria has a reportable segment if that
segments revenue exceeds:
a. 2,640,000
b. 2,600,000
c. 2,040,000
d. 2,000,000
Dysas 1st #4 B
4. Alpha Company provided the following information relating to the current year:
Net income
3,500,000
Unrealized gain on trading securities
250,000
Foreign currency translation adjustment-credit
50,000
Revaluation surplus
1,000,000
How much is the comprehensive income?
b. 3,800,000
b. 4,700,000
c. 4,550,000
d. 4,800,000
Dysas 1st #5 C
5. The income statement of Hyper Company for the year ended December 31, 2011 is given below:
Sales
6,000,000
(2,800,000
Cost of goods sold
)
Gross income
3,200,000
Gain on sale of equipment
100,000
Total income
3,300,000
Operating expenses
(500,000)
Casualty loss
(300,000)
Income before tax
2,500,000
Income tax
(875,000)
Net income
1,625,000
The tax rate is 30%.
Third quarter sales were 30% of total sales.
For interim reporting purposes, a gross profit rate of 40% can be justified.
Variable operating expenses are allocated in the same proportion as sales. Fixed operating expenses are
allocated based on the expiration of time. Of the total operating expenses, P400,000 relate to variable
expenses.
The equipment was sold on July 6, 2011.
The casualty loss occurred on September 1, 2011.
What is the income before tax for the third quarter ended September 30, 2011?
c. 275,000
b. 375,000
c. 500,000
d. 300,000
Dysas 1st #7 B
6. The records of Big Corporation at December 31, 2011 showed the following balances:
Uncollectible accounts expense
2,000,000
Freight out
3,500,000
Cost of sales
40,000,000
Loss on sale of equipment
1,500,000
Loss from typhoon
3,000,000
Sales
90,000,000
Interest income
4,000,000

Administrative expenses
10,000,000
Finished goods inventory, January 1
60,000,000
Sales commissions
7,000,000
Finished goods inventory, December 31
55,000,000
Income tax rate
30%
Big shall report as income after income tax from continuing operations the amount of:
a. 30,000,000
b. 21,000,000
c. 27,000,000
d. 18,900,000
Dysas 1st #6 D
7. Moon Company reports quarterly to its stockholders. Condensed financial information is presented. Selected
information for the year ended 2011 is shown below:
a. Machinery repairs P100,000 incurred in the first quarter are expected to benefit each quarter equally.
b. Advertising costs are allocated among the remaining quarters of the annual period, including the quarter in
which the costs are incurred on the basis of historical pattern of sales: 20%, 30% 15% and 35% in the first
through fourth quarters respectively. Advertising expense amounted to P120,000 and was incurred in the
second quarter.
How much of the above expenses should be reported for the second quarter?
a. 120,000
b. 70,000
c. 65,000
d. 0
Dysas 1st #9 B
8. The following is a statement of retained earnings for the current year provided by Laser Company:
Balance at beginning of year
85,000
Additions:
Change in estimate of amortization expense for the year
2,500
Gain on sale of land
18,000
Interest revenue
4,500
Profit and loss for the current year
13,000
38,000
Total
123,000
Deductions:
Increased depreciation due to change in estimated life
5,000
Dividends declared and paid
11,000
Loss on sale of equipment
3,000
Loss from major casualty
7,000
26,000
Balance at end of year
97,000
What net income should have been reported in the income statement for the year?
a. 23,000
b. 13,000
c. 12,000
d. 25,500
Dysas 1st #10 A
The worksheet below presents the comparative statement of financial position items of Kim Company at
December 31, 2011 and 2010:
2011
2010
Cash
4,037,500
3,500,000
Accounts receivable
5,640,000
5,840,000
Inventories
9,250,000
8,575,000
Property, plant and equipment
16,535,000
14,835,000
(5,825,000
(5,200,000
Accumulated depreciation
)
)
Investment in associate
1,525,000
1,375,000
Loan receivable
1,312,000
0
Accounts payable
5,075,000
4,775,000
Income taxes payable
150,000
250,000
Dividends payable
400,000
500,000
Liability under finance lease
2,000,000
0
Ordinary shares, P10 par
2,500,000
2,500,000
Share premium
7,500,000
7,500,000
Accumulated profits
14,850,000
13,400,000
Additional information:
a) On December 31, 2010, Kim acquired 25% of Mings Co.s ordinary shares for P1,375,000. On that date, the
book value of Mings only assets and liabilities, which approximated their fair values, was P5,500,000. Ming
reported profit of P600,000 for the year ended December 31, 2011. No dividend was paid on Mings ordinary
shares during the year.
b) During 2011, Kim loaned P1,500,000 to Lim Co., an unrelated company. Lim made the first semi-annual
principal repayment of P187,500., plus interest at 10%, on December 31, 2011.
c) On January 2, 2011, Kim sold equipment costing P300,000, with a carrying amount of P175,000, for P200,000
cash.
d) On December 31, 2011, Kim entered into a finance lease for an office building. The present value of the
annual rental payments is P2,000,000, which equals the fair value of the building. Kim made the first rental
payment of P300,000 when due on January 2, 2012.
e) Profit for 2011 was P1,850,000.
f) Kim declared and paid cash dividends of P500,000 for 2011.
Based on the preceding information, determine the following:
9. Net cash provided by operating activities:

a. 2,025,000
b. 2,150,000
c. 2,175,000
d. 2,000,000
10. Net cash used by investing activities:
a. 962,500
b. 1,300,000
c. 1,262,500
d. 1,112,500
11. Net cash used by financing activities:
a. 500,000
b. 350,000
c. 800,000
d. 900,000
Dysas #13, 14, and 15 1st bda
12. Your count of the undeposited receipts under the custody of the cashier of Nova Company on September 30,
2011 showed the following composition:
Currency and coins
P 4,950
Unused postage stamps
90
Checks:
Date
Payee
Drawer
9/25/2011
Nova Co.
Phil. Corp.
1,200
9/28/2011
Nova Co.
Detour
900
9/30/2011
DLPC
Nova Co.
1,050
Travel expense voucher paid out of cash
600
Total per count
P 8,790
Assuming the cashiers accountability to be P8,500, what was the amount of shortage/overage on September 30,
2011?
a. P200 overage
b. 760 overage
c. 1,500 shortage
d. no shortage/overage
Dysas 1st #38 B
13. The statement of financial position at December 31, 2011 of Lore Company showed a cash balance of P105,600.
An examination of the books disclosed the following:
a. The sales book was left open up to January 5, 2012 and cash sales totalling P15,000 were considered as
sales in December 2011.
b. Checks of P9,300 in payment of liabilities were prepared before December 31, 2011, recorded in books, but
not mailed or delivered to payees.
c. Customers post-dated checks totalling P7,800 are being held by the cashier as part of cash. The companys
experienced shows that post-dated checks are eventually realized.
d. Customers check deposited with but returned by bank, NSF, on December 27, 2011. Return was not
recorded in the books, P1,500.
e. The cash accounts includes P40,000 earmarked for the purchase of an office equipment which will be
delivered soon.
How much cash balance is to be shown on December 31, 2011 statement of financial position?
a. 105,600
b. 60,500
c. 58,400
d. 50,600
Dysas 1st #39 D
14. The cash account of Gravy Company as of December 31 was composed of the following:
On deposit in current account with PBC bank
P 90,000
Cash collection not yet deposited to the bank
35,000
A customer's check returned by the bank for insufficient fund
15,000
A check drawn by the VP of the company dated January 15
7,000
A check drawn by a supplier dated December 28 for
goods returned by Gravy
6,000
A check dated May 31 drawn by Gravy against the Prudential
Bank in payment of customs duties, since the importation
did not materialize, the check was returned by the
customs broker. This check was an outstanding check
in the reconciliation of the Prudential Bank account
41,000
Petty cash fund of which P5,000 is in currency;
P3,600 in the form of employee's IOUs and P1,400
is supported by approved petty cash vouchers for expenses
all dated prior to closing of the books on December 31
10,000
Total
P 204,000
Less: Overdraft with Prudential Bank secured by a
chattel mortgage on the inventories
(30,000)
Balance per ledger
P 174,000
At what amount will the amount cash appear on the December 31 balance sheet?
a. 131,000
b. 147,000
c. 172,000
d. 174,000
Dysas 1st #40 B
15. Zoe Companys yearend is December 31, 2011 and the 2011 financial statements were authorized for issue on
March 31, 2012. Zoe had the following events after the reporting period:
On February 1, 2012, Zoe determined that the total cost of the equipment purchased is P3,300,000. The
asset was purchased on November 12, 2011 and recorded at P2,000,000.
On March 15, 2012, Zoe discovered that its 2011 salary expense was understated by P150,000.
On March 20, 2012, Zoe issued 100,000 ordinary shares at par of P10 per share.
How much should be reported as adjusting events on December 31, 2011?
a. 1,300,000
b. 1,450,000
c. 2,300,000
d. 2,450,000
Cpar #4 1st B
16. Comparison of the balance sheet of Reach at the end of 2011 with its balance sheet at the end of 2010 showed a
decrease in total assets of P69,000 and owners equity by P15,000, the change in liabilities during the year was:

17.

18.

19.

20.

21.

22.

a. Increase of P84,000
c. decrease of P54,000
b. Decrease of P84,000
d. increase of P54,000
Dysas 2nd #17 C
The trial balance of Sheila Company reflected the following account balances on December 31, 2011:
Accounts receivable
400,000
Allowances for doubtful accounts
50,000
Cash in bank
500,000
Accumulated depreciation
300,000
Property, plant and equipment
2,000,000
Inventory
600,000
Deferred charge
40,000
Cash surrender value
60,000
Land held for future sales
200,000
What is the amount of the current assets?
a. 1,490,000
b. 1,650,000
c. 1,450,000
d. 500,000
Dysas 2nd #18 C
You were approached by the parish priest to determine if there is a cash shortage or overage of the parish
finances as of September 30, 2011. He stated that he does not maintain a good internal control over its cash
transactions. The parish records show a balance of cash on hand and in bank of P29,025.00. You counted the
cash on hand amounting to P14,560.00. A pledge of P200.00 was collected by the bank and for which a service
charge of P15.00 did not appear in the parish records. The bank statement balance is P18,500.00. Outstanding
checks amounted to P6,850.00. Based from the foregoing information, there is a shortage or cash shortage or
cash overage of:
a. P930.00 cash shortage
c. P930.00 cash overage
b. P11,650.00 cash shortage
d. P11,650.00 cash overage
Dysas 2nd #22 C
The trial balance of West Company showed the following liability account balances on December 31, 2011:
Accounts payable (including a debit balance of P350,000 due to overpayment)
4,500,000
Bonds payable, due March 31, 2012
6,000,000
Premium on bonds payable
200,000
Deferred tax liability
3,500,000
Income tax payable
5,500,000
Note payable-bank
2,000,000
The bank loan matures on July 31, 2012. On December 31, 2011, the entire balance of the note was refinanced
on a long-term basis. The 2011 financial statements were authorized for issue on March 1, 2012. What amount
should be reported as total current liabilities on December 31, 2011?
a. 16,550,000
b. 16,200,000
c. 18,550,000
d. 18,200,000
Cpar 1st #2 A
On January 1, 2009, Mara Company purchased equipment for P3,000,000 with a 5- year useful life and no
residual value. On January 1, 2010, Mara incurred repairs for P500,000 and inappropriately capitalized the entire
amount. The error was discovered on January 1, 2011 and the assets residual value was estimated to be
P400,000 also on this date. What amount should be recognized as a prior period error in the opening balance of
retained earnings on January 1, 2011?
a. 500,000
b. 375,000
c. 125,000
d. 0
Cpar 1st #7 B
Gilas Company provided the following items at the end of the current year:
Cash on hand (including bank draft of P100,000 and postdated check of P50,000)
2,350,000
Cash in bank per bank statement
1,500,000
Treasury bonds
1,700,000
3-year time deposit purchased 2 months prior to maturity
1,200,000
Credit memo authorizing return of goods to vendor
550,000
Debit balance in accounts payable due to overpayment
300,000
Loan proceeds credited by the bank to the depositor's bank account
600,000
Cash surrender value
150,000
Cash fund set aside to acquire equipment next year
300,000
A review of the records revealed that the deposit in transit and outstanding checks were P600,000 and P900,000
respectively. What total amount should be reported as cash and cash equivalents?
a. 6,400,000
b. 4,700,000
c. 5,000,000
d. 4,600,000
Cpar 1st #12 B
The financial statements of Emma Company contained the following errors:
December 31, 2011 inventory understated
500,000
December 31, 2012 inventory overstated
800,000
Depreciation for 2011 overstated
250,000
December 31, 2012 accrued rent income overstated
300,000
December 31, 2012 accrued salaries understated
150,000
The understatement of the 2011 ending inventory pertains to goods in transit purchased FOB shipping point which
were not recorded in 2011 but paid in 2012. On December 31, 2012, fully depreciated machinery was sold for
P100,000 cash but the sale was not recorded until 2013. What is the effect of the errors on retained earnings on
December 31, 2012?
a. 1,150,000 understated
c. 900,000 understated

b. 1,150,000 overstated
d. 900,000 overstated
11-31 p551 D fin 2
23. Malampaya Company showed income before income tax of P6,500,000 on December 31, 2012. The year-end
verification of the transactions revealed the following errors:
P1,000,000 worth of merchandise was purchased in 2012 and included in the ending inventory. However,
the purchase was recorded only on 2013.
A merchandise shipment valued at P1,500,000 was properly recorded as purchase at year-end. Since the
merchandise was still at the port area, it was inadvertently omitted from the inventory on December 31,
2012.
Advertising for December 2012, amounting to P500,000, was recorded when payment was made in
January, 2013.
Rent of P300,000 on an equipment applicable for six months was received on November 1, 2012. The
entire amount was reported as income upon receipt.
Insurance premium covering the period from July 1, 2012 to July 1, 2013, amounting to P200,000 was
paid and recorded as expense on July 31, 2012. The entity did not make any adjustment at the end of the
year.
What is the corrected income before tax for 2012?
a. 6,900,000
b. 6,400,000
c.6,500,000
d. 6,300,000
11-23 p545 B fin 2
24. Increases (decreases) in the accounts of Java Company for the current year are as follows:
Cash
1,500,000
Accounts receivable
3,500,000
Inventor
y
3,900,000
Investments
(1,000,000)
Equipment
3,000,000
Accounts payable
(800,000)
Bonds payable
2,000,000
During the year, the entity sold for cash 100,000 shares with P20 par for P30 per share. Dividend of P4,500,000
was paid in cash. The entity borrowed P4,000,000 from the bank and paid off note of P1,000,000 and interest of
P600,000. The entity had no other loan payable. Interest of P400,000 was payable on December 31. Interest
payable on January 1 was P100,000. Equipment on P2,000,000 was donated by a shareholder during the year.
What is the net income for the current year?
a. 7,900,000
b. 8,900,000
c. 5,900,000
d. 6,900,000
10-23 p506 C fin2
25. Elysee Company was incorporated on January 1 of the current year by issuing share capital with par value of
P50,000,000 for P60,000,000. Land and building were purchased for P25,000,000 with a down payment of
P10,000,000. A one-year note was signed for the remainder. A check was written for P4,500,000 to pay for
equipment. A check of P1,500,000 was written to acquire software. One piece of computer equipment was sold at
its original price and the cash collected was deposited in the entitys checking account. The balance of the
checking account on January 31 was P45,000,000. What is the sale price of the computer equipment?
a. 3,000,000
b. 1,500,000
c.1,000,000
d. 2,000,000
10-25 p507 C fin2
Selected accounts, cash receipts and disbursements of Emmyrelle Company are as follows:
December 31
January 1
Accounts receivable
250,000
300,000
Notes receivable
150,000
100,000
Accounts payable
120,000
160,000
Notes payable
200,000
150,000
Prepaid insurance
30,000
10,000
Cash receipts for 2012 include:
Cash sales
Collection of accounts receivable, net discounts
of P40,000
Collections of notes receivable
Bank loan-one year, dated December 31, 2012
Purchase returns and allowances
Cash disbursements for 2012 include:
Cash purchases
Payments on accounts payable, net of discounts
of P20,000
Payments on notes payable
Insurance
Other expenses
Sales returns and allowances
26. Under accrual basis, what is the amount of gross sales for the current year?
a. 2,420,000
b. 2,470,000
c. 1,920,000
27. Under accrual basis, what is the amount of gross purchases for the current year?

500,000
1,800,000
80,000
100,000
60,000
130,000
1,500,000
400,000
220,000
650,000
50,000
d. 1,970,000

a. 1,960,000
b. 2,020,000
c. 1,830,000
d. 1,890,000
9-27 p456 AA fin 2
28. Pak Companys professional fees expense account had a balance of P820,000 on December 31, 2012, before
considering year-end adjustments relating to the following:
Consultants were hired for a special project at a total fee not to exceed P650,000. The entity has
recorded P550,000 of this fee based on billings for work performed in 2012.
The attorneys letter requested by the auditors dated January 31, 2013 indicated that legal fees of
P60,000 were billed on January 15, 2013 for work performed in November 2012, and unbilled fees for
December 2012 were P70,000.
What amount should be reported for professional fees expense for the year ended December 31, 2012?
a. 1,050,000
b. 950,000
c. 880,000
d. 820,000
9-38 p461 fin2 B
29. On January 1, 2012, Poe Construction Company changed to the percentage of completion method from cost
recovery method of income recognition. On December 31, 2011, the entity compiled the data showing that income
under the cost recovery method aggregated P7,000,000. If the percentage of the completion method had been
used, the accumulated income through December 31, 2011 would have been P9,000,000.
If the income tax rate is 30%, the cumulative effect of accounting change should be reported in the 2012
a. Retained earnings statement as P2,000,000 credit adjustments to the beginning balance.
b. Income statement as P2,000,000 credit.
c. Retained earnings statement as a P1,400,000 credit adjustment to the beginning balance.
d. Income statement as a P1,400,000 credit.
6-27 p325 C fin2
30. Banko Construction Company has used the cost recovery method of accounting since it began operations in
2009. In 2012, for justifiable reasons, management decided to adopt the percentage of completion method. The
following schedule, reporting income for the past 3 years, has been prepared by entity.
2009
2010
2011
Total revenue from
25,000,00
42,000,00
completed contracts
0
0
40,000,000
Less: Cost of completed
18,000,00
29,000,00
contracts
0
0
28,000,000
13,000,00
Income from operations
7,000,000
0
12,000,000
Casualty loss
0
0
(2,000,000)
13,000,00
Income from operations
7,000,000
0
10,000,000
Analysis of the accounting records disclosed the following income by contracts, earned in the years 2009-2011
using the percentage of completion method.
2009
2010
2011
7,000,00
Contract 1
0
5,000,00
8,000,00
Contract 2
0
0
3,000,00
7,000,00
Contract 3
0
0
2,000,000
1,000,00
Contract 4
0
6,000,000
(1,000,000
Contract 5
)
What pretax amount should be reported as the cumulative effect of change in accounting policy in the statement
of retained earnings for 2012?
a. 6,000,000
b. 8,000,000
c. 7,000,000
d. 0
6-28 p326 A fin2